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"I think the moment is now for us to act on what we all know to be the truth, which is that each side is going to have to make some difficult compromises," Obama said, a day after a landmark address to the Muslim world.
"Ultimately, the United States can't force peace upon the parties. But what we've tried to do is to clear away some of the misunderstandings so that we can at least begin to have frank dialogue."
He reiterated his demand for Israel to stop settlement expansion on the West Bank but added that he was "very sympathetic" to political pressures faced by Israeli Prime Minister Benjamin Netanyahu.
And he urged Palestinians and Arab neighbours to do their part by making "tough choices" to defuse the situation in the region.
Merkel said she believed Obama's efforts could make headway toward a two-state solution in the Middle East.
"I believe that with the new American administration, with President Barack Obama, there is actually a unique opportunity now to see to it that this peace process -- or let's perhaps be more careful -- this negotiation process to be revived again," Merkel said.
After their talks in the eastern city of Dresden, Obama and Merkel underlined their commitment to Israeli security as they prepared to visit the former Nazi concentration camp of Buchenwald.
In his speech at the University of Cairo, Obama pointedly mentioned the camp in which at least 56,000 prisoners were killed -- and with a sharp rebuke for Holocaust deniers.
"Six million Jews were killed -- more than the entire Jewish population of Israel today. Denying that fact is baseless, ignorant, and hateful," Obama said in a clear swipe at Iran's President Mahmud Ahmadinejad, who has questioned whether the Holocaust took place.
German media saw the visit to Buchenwald as a conciliatory gesture to Israel and US Jews after his criticism of Israeli policy in Cairo.
Nobel laureate and Holocaust survivor Elie Wiesel, who was accompanying Obama to Buchenwald, told AFP he expected the president to be "very moved" by what he would see there.
Obama's visit to Buchenwald would also have an important personal element as his great-uncle, Charlie Payne, took part as a US army private in the 1945 liberation of Ohrdruf, a forced labour camp that was a satellite of Buchenwald.
Payne, 84 and frail, decided not to accompany the president to Buchenwald, but will join Obama's party at cermonies for the 65th anniversary of the D-Day landings in Normandy, France on Saturday.
The stops in Dresden, Buchenwald and Normandy together form a solemn two-day mission of World War II remembrance.
Dresden was controversially flattened by Allied bombing in the final months of World War II, killed an estimated 35,000 people.
The decision to visit prompted conservative US bloggers to speculate that Obama plans an "apology" for the raids in 1945 that destroyed three-quarters of the once-beautiful eastern German city.
No such apology was forthcoming, however, with Obama saying only that the city was "steeped in history and .. has overcome great tragedies and is now this beautiful city full of hope."
The city has been lovingly restored in the intervening years, and Merkel led the president through the Green Vault museum of treasures collected by the Saxon royal family.
They also toured the Church of Our Lady, a Baroque house of worship that was destroyed in the war and reopened in 2005 after a pricey reconstruction financed with donations from around the world.
Obama remains extremely popular in Germany, nearly a year after he drew a rapturous crowd of 200,000 people to the streets of Berlin as a presidential candidate.
An aide said Obama was interested in hearing about life behind the Iron Curtain from Merkel, who grew up in the former communist East Germany, and seeing the country's transformation since the Berlin Wall fell 20 years ago.
Obama was due to pay a visit to wounded US troops at the Landstuhl medical centre in western Germany before heading to France later Friday.
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"Ultimately, the United States can't force peace upon the parties. But what we've tried to do is to clear away some of the misunderstandings so that we can at least begin to have frank dialogue."
He reiterated his demand for Israel to stop settlement expansion on the West Bank but added that he was "very sympathetic" to political pressures faced by Israeli Prime Minister Benjamin Netanyahu.
And he urged Palestinians and Arab neighbours to do their part by making "tough choices" to defuse the situation in the region.
Merkel said she believed Obama's efforts could make headway toward a two-state solution in the Middle East.
"I believe that with the new American administration, with President Barack Obama, there is actually a unique opportunity now to see to it that this peace process -- or let's perhaps be more careful -- this negotiation process to be revived again," Merkel said.
After their talks in the eastern city of Dresden, Obama and Merkel underlined their commitment to Israeli security as they prepared to visit the former Nazi concentration camp of Buchenwald.
In his speech at the University of Cairo, Obama pointedly mentioned the camp in which at least 56,000 prisoners were killed -- and with a sharp rebuke for Holocaust deniers.
"Six million Jews were killed -- more than the entire Jewish population of Israel today. Denying that fact is baseless, ignorant, and hateful," Obama said in a clear swipe at Iran's President Mahmud Ahmadinejad, who has questioned whether the Holocaust took place.
German media saw the visit to Buchenwald as a conciliatory gesture to Israel and US Jews after his criticism of Israeli policy in Cairo.
Nobel laureate and Holocaust survivor Elie Wiesel, who was accompanying Obama to Buchenwald, told AFP he expected the president to be "very moved" by what he would see there.
Obama's visit to Buchenwald would also have an important personal element as his great-uncle, Charlie Payne, took part as a US army private in the 1945 liberation of Ohrdruf, a forced labour camp that was a satellite of Buchenwald.
Payne, 84 and frail, decided not to accompany the president to Buchenwald, but will join Obama's party at cermonies for the 65th anniversary of the D-Day landings in Normandy, France on Saturday.
The stops in Dresden, Buchenwald and Normandy together form a solemn two-day mission of World War II remembrance.
Dresden was controversially flattened by Allied bombing in the final months of World War II, killed an estimated 35,000 people.
The decision to visit prompted conservative US bloggers to speculate that Obama plans an "apology" for the raids in 1945 that destroyed three-quarters of the once-beautiful eastern German city.
No such apology was forthcoming, however, with Obama saying only that the city was "steeped in history and .. has overcome great tragedies and is now this beautiful city full of hope."
The city has been lovingly restored in the intervening years, and Merkel led the president through the Green Vault museum of treasures collected by the Saxon royal family.
They also toured the Church of Our Lady, a Baroque house of worship that was destroyed in the war and reopened in 2005 after a pricey reconstruction financed with donations from around the world.
Obama remains extremely popular in Germany, nearly a year after he drew a rapturous crowd of 200,000 people to the streets of Berlin as a presidential candidate.
An aide said Obama was interested in hearing about life behind the Iron Curtain from Merkel, who grew up in the former communist East Germany, and seeing the country's transformation since the Berlin Wall fell 20 years ago.
Obama was due to pay a visit to wounded US troops at the Landstuhl medical centre in western Germany before heading to France later Friday.
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