White supremacists have reportedly called for a rally at Cronulla beach on Thursday's Australia Day celebrations, mirroring race riots on the same beach last month.
In a speech to the National Press Club in Canberra, Mr Howard said the clashes brought "shame on all involved".
However he said he is optimistic for future tolerance and cultural diversity in Australia.
"The strength of a culturally diverse community, united by an overriding and unifying commitment to Australia, is one of our greatest achievements and one of our greatest national assets," he said.
"Our response should reflect this nation's unswerving commitment to racial equality, coupled with an absolute determination to ensure that all sections of the Australian community are fully integrated into the mainstream of our national life."
The violence which erupted on Sydney's Cronulla Beach on December 11 led to retaliatory attacks, mainly by ethnic Lebanese, in violence that saw churches, shops and cars trashed.
Up to 25,000 people are expected to gather at Cronulla for Australia Day celebrations, and the far-right Australia First Party has called a rally to press for charges against white rioters to be dropped.
New South Wales premier Morris Iemma earlier said an extra 1,200 police would be deployed to the suburb.
Mr Howard said the country's highest test this century will be maintaining social cohesion.
"Australia's ethnic diversity is one of the enduring strengths of our nation," he said.
But the celebration of this diversity should not come at "the expense of ongoing pride in what are commonly regarded as the values, traditions and accomplishments of the old Australia," he said.
He also called for a revived focus on the teaching of Australian history in schools.
Mr Howard quoted a recent review of social attitudes which found that, compared with a decade ago, "fewer Australians are ashamed of Australia’s past".
He welcomed this as restoring a balance between pride in the past and recognition of past wrongs, such as the treatment of indigenous people.
"We know there is further to go on the road to reconciliation with indigenous Australia," he said, adding that the government is "willing to meet the indigenous communities more than half way on this road."
He said Australia's standing in the world had never been higher and that the "divisive, phoney debate about national identity and what it means for our influence in the world has been finally laid to rest."