Castro told delegates to a crucial Communist Party summit that he would launch a "systematic rejuvenation" of the government. He said politicians and other important officials should be restricted to two consecutive five-year terms, including "the current president of the Council of State and his ministers" - a reference to himself.
The proposal was made toward the end of a 2½ hour speech in which the Cuban leader forcefully backed a laundry list of changes to the country's socialist economic system, including the eventual elimination of ration books and other subsidies, the decentralization of the island nation's economy and a new reliance on supply and demand in some sectors.
Still, he drew a line in the Caribbean sand as to which reforms should remain, telling party luminaries that he had rejected dozens of suggested reforms that would have allowed the concentration of property in private hands.
Castro said the country had ignored its problems for too long, and made clear Cuba had to make tough decisions if it wanted to survive.
"No country or person can spend more than they have," he said. "Two plus two is four. Never five, much less six or seven - as we have sometimes pretended."
Dressed in a white guayabera shirt, the Cuban leader alternated between reassurances that the economic changes were compatible with socialism, and a brutal assessment of the mistakes the country had made. Fidel Castro was not present for the speech.
Raul Castro said the monthly ration book of basic foods, perhaps the most cherished of subsidies, represented an "unbearable burden ... and a disincentive for work."
He said the changes he is proposing will come "without hurry, but without pause."
Still, he added that "there will never be room for shock therapy" in Cuba.
Of term limits, Castro said he and his brother had made various attempts to promote young leaders, but that they had not worked out well - perhaps a reference to the 2009 firing of Cuba's photogenic foreign minister and vice president, who were later accused of lusting too obviously for power.
"Today we face the consequences of not having a reserve of substitutes ready," Castro said.
Like the proposals on economic changes, the term-limit idea does not yet carry the force of law since the party gathering lacks the powers of parliament. But it's all but certain to be acted on quickly by the National Assembly.
The Communist Party is the only political organization recognized on the island, and most politicians are members. Cubans vote for municipal and national assemblies, which in turn elect senior leaders including the president. Currently there is no set limit on their terms.
Since taking office, Raul Castro has leased tens of thousands of hectares of fallow government land to small farmers, and enacted reforms that allow Cubans to go into business for themselves, rent out homes and hire employees.
Cubans are watching to see whether other changes emerge from the Congress - such as the end of a near-total ban on buying and selling private property, or details on promises to extend bank credits.
Raul Castro has also pledged to end Cuba's unusual two-tiered currency system, where wages are paid in pesos, while many imported goods are available only in a dollar-linked economy beyond most people's reach. The president, however, has said little about how or when he will accomplish that.
The other major prong of the modernization drive - a goal of laying off half a million state workers in jobs that are unproductive and redundant - has been delayed indefinitely.
Carmelo Mesa-Lago, a Florida-based Cuba economics expert, said the changes so far have not been sufficient to revive the island's sputtering economy, and more must be done.
Authorities need to expand private business licenses to the professional class to stop the brain drain, reduce taxes on earnings and deliver badly needed credit and training, among other measures, Mesa-Lago said.
"If you want to get rid of all this dead wood which costs a lot of money, and have money to be able to pay better wages, then you have to give priority to job creation," Mesa-Lago said. "You shouldn't be punishing these people who are trying to expand these jobs."
Also key is the question of the Communist Party's top leadership, which will be decided at the close of the Congress. Raul Castro presumably will be named to succeed older brother Fidel as first secretary, but it is unknown who may be tapped to be No. 2.
Castro's speech about rejuvenating the political system added to hopes that a younger politician might take up that mantle, perhaps signaling a preferred successor.
Castro himself has said the party gathering will likely be the last of its kind under the generation that launched the 1959 revolution, many of whom are already in their graves. Since the last party Congress in 1997, Cuba has lost such giants as Vilma Espin, Raul's wife and a major revolutionary figure in her own right; and Juan Almeida, a vice president and commander of the revolution who died last year.
Thousands of soldiers high-stepped through sprawling Revolution Plaza as a military band played martial music beneath the gaze of an iconic image of Ernesto "Che" Guevara. Helicopters whirred and jet fighters in combat formation roared overhead while freshly painted amphibious assault vehicles and rocket launchers rumbled past a saluting Raul Castro up on the dais. Before becoming president, Castro was head of the armed forces.
Behind the troops marched hundreds of thousands of Cubans who waved to Castro. "Long live Cuba! Long live Fidel! Long live Raul!" they shouted.
"It is a really good party," said Anaibis Fernandez, a 54-year-old employee at a Havana sports facility who was among the marchers. "There are a lot of people here, and it's very well organized."
Associated Press writers Anne-Marie Garcia, Andrea Rodriguez and Paul Haven contributed to this report.