Ah yes, these options have changed in 3.5, although it seems to guess the right ones most of the time (it did for me).
So, in 3.5 the instructions are slightly different:
Go to Tools -> Options and click Privacy. Now next to 'Firefox will:' you can either select 'Remember history' (which should set the right things) or select 'Use custom settings for history'.
If you selected 'Use custom settings' a lot of options will appear.
Make sure the following 4 things are showing:
[No tick] Automatically start Firefox in a private browsing session
Cookies
[Tick] Accept cookies from sites
Keep until: [they expire]
Private Data
[No tick] Always clear my private data when I close Firefox
While you are at it, if you don't want to make it too easy for advertisers to track your online behavior, untick 'Accept third party cookies'.
If you don't need to keep your personal information safe from other people that use your computer you don't need to worry about the other settings.