How can I reference to an Algorithm employed in figure environment in latex? When I'm using ref{} , latex does not know its associated label

You load the package algpseudocode anyway, so let's use it. See the documentation of the package algorithmicx for details.

Side-note: For the 'is-element-of' relation, there is the TeX command in. If you don't like the symbol, one can change it, but it is not advisable to use something like hspace{0.08cm}epsilon hspace{0.08cm} instead.

documentclass{article}
usepackage{algpseudocode}
usepackage{algorithm}
begin{document}

begin{algorithm}
  begin{algorithmic}[1]
For{each mode $iinmathcal I$}
State $Omega_i^0=mathcal{X}_i$
EndFor
Repeat
  For{each mode $iinmathcal I$}
  EndFor
Until{bored}
end{algorithmic}
caption{My Pseudocode }
label{Fig1}
end{algorithm}

See Algorithm~ref{Fig1}. 

end{document}

If you prefer to refer to the algorithm as a figure, I suggest to replace algorithm by figure, but not to nest them.

documentclass{article}
usepackage{algpseudocode}
begin{document}

begin{figure}
  begin{algorithmic}[1]
For{each mode $iinmathcal I$}
State $Omega_i^0=mathcal{X}_i$
EndFor
Repeat
  For{each mode $iinmathcal I$}
  EndFor
Until{bored}
end{algorithmic}
caption{My Pseudocode }
label{Fig1}
end{figure}

See Figure~ref{Fig1}. 

end{document}