The accord is one of about 15 agreements being signed during the visit, ranging from cultural to defense.
A common statement is to be issued by Hollande and Bouteflika, the contents of which were the subject of intense diplomatic discussions in recent months. Hollande said a document spelling out the new partnership would also be signed.
The French president made an abrupt departure from the playbook in October. He broke the official French silence over the massacre of Algerians by French police during a pro-independence demonstration in Paris in 1961. Some bodies were found floating in the Seine River in what Hollande acknowledged was a "bloody repression," paying homage to the victims of "this tragedy."
"The Republic recognizes these acts with clarity," Hollande said, 51 years after an event for which an official death toll has never emerged.
He was chastised for the statement by political foes on the French right.
Algeria, which has fought an Islamist insurgency for well over a decade, has also been an important partner for France and other western nations in the war on terrorism. Among topics Hollande discussed with Bouteflika is the fragile situation in Mali, where a branch of Algeria-based al-Qaida in the Islamic Maghreb and other radical Islamists control the north.
France has led a plan for an intervention by African forces to recapture northern Mali, with logistical help from the West. Algeria, which shares a hard-to-police desert border with Mali and could be swept into the fray, has pressed instead for political dialogue.
Hollande, continuing a gradual softening of the French approach, said the two sides agree on political dialogue "but only with movements that are separating from terrorism," a reference to the pro-independence Tuaregs in Mali being pushed aside by radical Islamists.
Hollande is not the first French president to try to lay a new basis for relations with Algeria. Four French leaders in succession have come here to seek a new start. A friendship treaty proposed by President Jacques Chirac, who left office in 2007, never got off the drawing board due to enmities.