Relations between Obama, left, and Merkel are said to be strained [File, EPA]

The US president will also on Friday travel to the former Buchenwald concentration camp to commemorate victims of the Holocaust.

The visit to Buchenwald will also hold personal significance for Obama as his great uncle helped liberate a satellite camp of Buchenwald created by the Nazis near Weimar.

An estimated 56,000 people were killed there.

Obama, who will be accompanied by Merkel on his visit to the camp, will also meet Elie Wiesel, the Nobel laureate and Holocaust survivor.

'Strained relations'

Obama arrived in Germany on Thursday, travelling from Cairo, where he had delivered a much-anticipated landmark speech in which he vowed to forge a "new beginning" for Islam and America.

Relations between Merkel and Obama are said to be strained, but Ulrich Wilhelm, a spokesman for Merkel, insisted that since their co-operation during the Nato conference in April, the two leaders have built a strong working relationship.

The two leaders are expected to discuss thorny issues such as Germany's commitment to the war in Afghanistan and possibly Berlin's reluctance to take inmates from the US military prison in Guantanamo Bay.

Obama is also thought to be keen on hearing Merkel's views on Moscow, as Russia supplied much of Germany's energy.

But analysts warned against expecting too much in the way of political decisions from the talks in Dresden.

'Holocaust and horror'

Later in the day, Obama will visit wounded US soldiers from Iraq and Afghanistan at the Landstuhl military hospital.

Following his visit to Germany, Obama will travel to France for talks with Nicolas Sarkozy, the French president.

On Saturday, he will join Sarkozy on the Normandy beaches to mark the 65th anniversary of the D-Day landings - a reminder to European states of the debt they owe the US.

In an interview in Germany's Leipziger Volkszeitung newspaper, Merkel said: "Buchenwald concentration camp, the battle fields of northern France and the destruction of Dresden stand for the terrible suffering which Germany wreaked on Europe through the Holocaust and horror of World War Two."

Back in Dresden, locals celebrated Obama's visit with an outdoor beer festival with balloons, US flags and a jazz band playing in front of a banner that read: "Welcome Mr President".

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