"Down with imperialism! Africa must unite, so that we do not again become serfs or slaves," he said.
"It is necessary to establish a unity government for the African continent and that Africa has one army ... which could consist of a million soldiers," he said.
"Even the South African army is worthless to NATO or the United States of America. Even Libya is not even able to protect its territorial waters alone."
Africa's longest-standing Arab leader, having been in power for 41 years, Kadhafi appeared to improvise his speech, which was made in Arabic and translated simultaneously into French.
He said African leaders who "do not want to put in place a single African army" were "agents of imperialism, myopic, or traitors who do not think about the future of Africa."
"It is not enough to dwell on the past of the continent, we were treated like animals, we were hunted in the forest, they enslaved us ... they appropriated Africa. But why fight for liberation, if we remain satellites of our colonial powers?"
Kadhafi, 68, first proposed a United States of Africa in September 1999 as a way of ending the continent's conflicts.
The initiative has failed to bear fruit, receiving support from some and a lukewarm response from others, while many countries remain wary.
Kadhafi has warned he will turn his back on Africa and move his investments to Arab and Mediterranean states if his unity project is blocked.
Wade, 84, who has been in power since 2000 and is running for a controversial third term in 2012, introduced Kadhafi as his companion in the struggle for "the edification of the United States of Africa."
The Senegalese leader said: "We ask, here and now, for the establishment of the United States of Africa, the only solution to free our peoples and ... make Africa a major cultural, economic, political and social whole which will be respected."
The presidents spoke in front of several hundred young people gathered on stairs leading to a massive bronze African Renaissance statue built by North Korea and inaugurated in April for the 50th anniversary of Senegal's independence.
Also present were Guinea-Bissau President Malam Bacai Sanha, Liberian President Ellen Johnson Sirleaf and Cape Verde President Pedro Pires.
The World Festival of Black Arts continues in Dakar until December 31.