The option to sort bookmarks in Firefox is tucked away in the Bookmarking Manager. While the sorting options should be sufficient for most users the lack of distinguishing between different kind of bookmarks and the temporariness of the selected options make it barely usable.
Sort Places is an experimentally Firefox add-on that provides better and faster sorting options for Firefox bookmarks. The add-on adds a Sort entry to the bookmarks menu and can also be added as an icon to a Firefox toolbar.
It sorts all bookmarks by default but can be modified to sort only selected folders. The options that make it superior to the default Firefox sorting function are the following:

- Exclude Toolbars from sorting
- Define Sort Order by assigning values to queries, folders, bookmarks and livemarks
- Sort Places uses separators to define groups that will be sorted individually
Sort Places will remember the settings that the user entered while sorting bookmarks but it will not automatically sort newly added or moved bookmarks. It would be an ideal bookmark sorting add-on if the author could somehow implement that feature. As of now it is easier to access than the default way of sorting bookmarks in Firefox and provides much needed filters that define how the bookmarks are sorted.
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This is very useful, thanks! I have been looking for something to sort the bookmarks better, and I completely missed this extension.