Chancellor's Address

The causes and consequences of the current round of violence in the Gaza Strip should not be forgotten, Merkel said in her speech, an advance copy of which was posted on her Web site in advance of its national broadcast Wednesday evening.

The violence between Israeli and Hamas forces continued on Wednesday morning with Hamas rockets hitting the major Israeli city of Beersheba, and Israel rejecting a French proposal for a 48-hour truce that would allow more humanitarian aid into the Gaza Strip. Israeli Foreign Ministry spokesman Yigal Palmor said it was unrealistic for Israel to "cease fire unilaterally with no mechanism to enforce the cessation of shooting and terror from Hamas."

In her address, Merkel said that "the terror perpetrated by Hamas is unacceptable."

"But we should also not forget there is no rational alternative to the peaceful co-existence of Palestinians and Israelis in two states. This is in the interests of people on both sides," she continued.

"The German government will provide whatever assistance it can towards this," she said as the death toll in Gaza climbed above 360 on the fifth day of Israeli airstrikes prompted by Hamas missile attacks on the Jewish state.

Call for social responsibility

Turning to the global economy, Merkel said it had been plunged into crisis by financial excess carried out without social responsibility and with a loss of proportion by many bankers and managers.

"The world has lived above its means," she said, adding that "only once we recognize these causes can we extricate the world from this crisis. To do this we need a clear set of principles."

These, she said, had to entail greater social responsibility in business and financial dealings and recognize that the state is "the guardian of economic and social order."

"These principles have to be adhered to across the world," Merkel said. "Only then will it be able to overcome the crisis. The world is currently learning this lesson."

Unlocking cash flows

The chancellor also outlined the steps her government was taking to pull the German economy out of recession and ensure that jobs are made secure and new ones created.

"First of all we need to make sure that our businesses have access to the necessary credit. The state will have to jump in if banks do not live up to their responsibilities."

The government set up a 480-billion-euro ($560-billion) fund in October to ease the liquidity problems of financial institutions caught up in the global credit squeeze.

But there have been complaints that banks are not taking sufficient advantage of the scheme. The government has called on lenders to take up their the offer and ease credit restrictions for small and medium-sized firms.

Further pledges

Merkel also promised to increase investment in education and infrastructure projects as well as extend high-speed internet connections to rural areas.

The measures form part of an economic stimulus package the government plans to unveil in January on the heels of another 32-billion-euro package announced earlier this month.

Merkel, who faces a general election in September, said she would meet regularly with business and political leaders to discuss how the measures were taking effect.