"What they have done has nothing to do with the cause of Islam," the Libyan leader told Rabe.
The Abu Sayyaf held hostage Filipino and foreign nationals they seized from Sipadan island in Borneo last year.
Libyan officials helped in the release of the hostages by participating in the negotiations with the Abu Sayyaf.
Filipino dive master Roland Ullah and American Islam convert Jeffrey Craig Schilling remain in the hands of the terrorists.
At the same time, Ghaddafi described President Arroyo’s peace initiatives in Mindanao as "wise move."
"The use of force and arms will not solve the problem as they will only be used by the rebels to rally people around them to fight the government," Rabe quoted Ghaddafi as saying.
Rabe handed to the Libyan leader a letter from Mrs. Arroyo outlining her initiatives to bring the Moro Islamic Liberation Front back to the negotiating table and restore peace in Mindanao.