First minister Rhodri Morgan told last week's Youth Justice Board conference in Cardiff that peer pressure was one of the dangers of imprisoning the young.
He was speaking as a YJB report suggested some young offenders considered anti-social behaviour orders a "badge of honour". Nearly half of under-18s have breached their Asbos, it found.
Mr Morgan told conference delegates: "If you put a lot of miscreant teenagers together, you produce a bragging culture.
"We hope to instil guilt into them for their crimes. What we actually produce is shame that they have failed to commit more glamorous, big-time crime."
Mr Morgan said the Assembly's all-Wales youth offending strategy aims to identify children and young people at risk of offending, and provide appropriate programmes to divert them.
Criminal Justice minister Baroness Scotland told delegates: "Often offending by young people takes place near school gates or on the journey to and from schools.
"I want every local area to think about police partnerships."
In England, the Safer Schools partnership has helped embed police staff in schools to build relationships with young people. But a children's charity claimed it was leading to pupils being arrested and getting criminal records for minor misbehaviour (TES Cymru, October 27).
In Wales, the all-Wales police liaison scheme instead trains officers to give lessons on issues such as drugs and domestic violence.