The decline of France's manufacturing sector is a key issue in the April-May two-round election and Sarkozy is keen to contain announcements of major job losses during his re-election bid.
However, unions and local politicians from the opposition Socialist party in the eastern Moselle region greeted the news with scepticism, saying that most of the investment was already planned.
"Yesterday (Wednesday) I had a long working meeting with (ArcelorMittal chief) Lakshmi Mittal... At the request of the French state, ArcelorMittal will now invest 17 million euros in Florange," Sarkozy told France Inter radio.
ArcelorMittal, the world's biggest steel maker, has idled one of the furnaces at the plant in the northeastern city of Florange since June and another since October, citing insufficient steel demand.
Sarkozy said two million euros of the investment will be used for works on one of the plant's furnaces that will allow it to restart production in the second half of this year.
Another eight million euros will be invested "in order to develop new products at Florange destined... for the automobile market," Sarkozy said, and the remaining seven million euros invested in a coke plant.
He said 500 of the plant's 2,667 employees had been at risk of losing their jobs.
ArcelorMittal confirmed that it hoped to restart the furnace in the second half of the year, but stressed that remained conditional on business picking up.
"We have no guarantee from Mittal that things will restart in the first half of the year," said CFDT union representative Edouard Martin.
FO union representative Walter Broccoli said that the idea of new products was too late: "Our customers are already buying from our competitors," he said.
Both union leaders said that only the investment in a coke plant was new.
Unions have been occupying a part of the site's management offices for the last 10 days.
"This money consists of sums that were already planned, and for parts of the site that are not under threat," local Socialist MPs Aurelie Filippetti and Michel Liebgott said in a statement.
"As for things restarting in the second half of the year, that promise has no value, because it will be after the presidential election, and Nicolas Sarkozy can't guarantee Mittal's position then," they said.
Sarkozy is struggling to catch up to the frontrunner in the race, Socialist candidate Francois Hollande, who has slammed Sarkozy's record on industrial development and job losses.