He says his decision hangs on whether the Chinese government and representatives of the Dalai Lama make some progress in talks this week in an undisclosed location in Beijing.
"I think it is progressing well," he said. "If there was continued progress and if the Dalai Lama and the Chinese president acknowledged the progress, then the obstacle to my participation would be lifted."
He said he will make his decision next week.
Sarkozy, who will receive Chinese President Hu Jintao in August, also hinted he may meet the Dalai Lama as well.
This latest comment from the French President was frowned upon in China.
Foreign Ministry spokesman Liu Jianchao said yesterday Tibet should not be linked with the Games.
"We oppose meetings between state leaders and the Dalai Lama; we oppose attaching Tibet-related issues to the Beijing Olympics; and we oppose politicizing the Beijing Olympics," Liu said.
Tibet is China's internal affair, as is any contact between the central government and the private representatives of the Dalai Lama, he said.
Despite China saying it opposes to politicizing the Games, the host country also got a rap on the knuckles by the International Olympic Committee (IOC).
Over a week ago when the torch relay was in Tibet, the Communist Party boss there, Zhang Qingli made a speech saying:
"The sky above Tibet will never change. The red five-star flag will always fly above this land.
"We can definitely smash the separatist plot of the Dalai Lama clique completely."In its letter, the IOC said it "regrets that political statements were made during the closing ceremony of the Torch Relay in Tibet".
"We have written to [the Beijing Organizing Committee for the Olympic Games] to remind them of the need to separate sport and politics and to ask for their support in making sure that such situations do not arise again."Despite the warning, China still denies that it is politicizing the Games.
Spokesman Liu insisted Zhang was trying to foster a "stable and harmonious environment for the Olympics".
"China's solid position is against the politicizing of the Olympics," Liu said.
Either the Chinese are playing hardball, or they believe they are playing politics with rules that don't apply to them.
China watchers aren't expecting any dramatic progress just before the Games just 37 days away. At this point we can only hope for more "productive" talks scheduled in the future.