One day after making a keynote speech in Cairo, Mr Obama said his government would seek a resumption of peace talks between Israel and the Palestinians.
"The moment is now, to act on what both sides know to be truth," he said.
Mr Obama is visiting the Nazi concentration camp in Buchenwald and afterwards a US Army hospital.
His visit to Buchenwald has a personal significance. His maternal great-uncle, Charles Payne, had been one of the US servicemen present at the liberation of Ohrdruf, a satellite camp of Buchenwald.
Mr Obama suggested Iranian President Mahmoud Ahmadinejad - who this week repeated his claims that the Holocaust was a "great deception" - should make his own visit to Buchenwald.
"I have no patience for people who would deny history," he said in an interview in Germany with NBC News," and the history of the Holocaust is not something speculative."
At the US military hospital, Mr Obama will meet troops injured on active duty in Afghanistan and Iraq.
The US president flew to Germany from Egypt, where he said the "cycle of suspicion and discord" between the United States and the Muslim world must end.
'Extraordinary activity'
During private talks, the two leaders discussed a broad range of major international challenges, they said at a news conference in Dresden:
• On Iran, Germany pledged to work with its contacts and use its "expert knowledge" as one of the key European negotiators with Tehran. Mr Obama said the US viewed the Iran issue in the "broader context" of preventing a nuclear arms race in the Middle East
• Mr Obama praised Germany as a "strong Nato partner" and spoke of the challenges ahead in Afghanistan, but stopped short of explicitly calling for more European troops
• The German chancellor gave no firm commitments on German assistance with terror suspects currently held at Guantanamo Bay, Mr Obama said, but said Europe would work with him as he seeks to close the prison camp
• Both leaders pledged to continue along the path of financial regulation set out at April's G20 summit
• On climate change, Mrs Merkel said the world faced an "uphill challenge", adding that both the US and Germany would seek a workable deal at a major climate conference in Copenhagen later this year
On the Middle East, the German chancellor said she and Mr Obama had discussed a timeframe for diplomatic action in the Middle East and pledged to offer whatever help Germany could provide.
Mr Obama remained vague about the exact steps his administration would take, but said he would send his special envoy George Mitchell back to the region to meet leaders and discuss the issues raised by his Cairo speech.
In Cairo the US president called for an end to Israeli settlement construction, something the right-wing government of Prime Minister Benjamin Netanyahu has yet to agree to.
"What is different now is that you're seeing an American president engage that issue [the Middle East] almost on the very first day I took office," Mr Obama said.
He said there had already been "extraordinary activity" on the issue which would send a sign to the region that the US means business, the president said.
However, other elements of the visit to Germany are more nuanced.
Mr Obama needs to convince an increasingly sceptical American public that the war in Afghanistan is worth fighting, the BBC's Steve Rosenberg in Berlin says.
So he will use his trip to Germany - and then the D-Day commemorations in France - to send a strong message back home that the fight against tyranny demands sacrifice, our correspondent says.
He says the US president has also for months been encouraging European governments to shoulder more of the burden in Afghanistan and to send more combat troops to take on the Taliban.
Washington also would like to see European countries take in dozens of detainees from Guantanamo Bay, but so far there has been little enthusiasm across Europe, our correspondent adds.
In a keynote speech in Cairo on Thursday, Mr Obama called for a "new beginning" in US relations with the Muslim world.
He admitted there had been "years of distrust" and said both sides needed to make a "sustained effort... to respect one another and seek common ground".
Mr Obama said the US bond with Israel was unbreakable but described the Palestinians' plight as "intolerable".
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