On Sunday she will visit Sde Boker, the kibbutz in the Negev Desert where Israel's first prime minister David Ben Gurion is buried and where in 1966 Ben Gurion met with Konrad Adenauer, West Germany's first chancellor.
Merkel, Germany's first chancellor to be born after the war, will travel to Israel accompanied by the top members of her cabinet for a full inter-governmental conference. Germany has previously only held such meetings with France, Italy, Spain, Russia and Poland, and Israel's cabinet will return the visit in 2009.
The visit also comes ahead of celebrations in May for the 60th anniversary of the creation of Israel. The German Federal Republic marks its own 60th birthday in 2009.
This is "perhaps the most important visit ever by a German head of government," Israel's ambassador in Berlin Yoram Ben-Zeev told AFP, taking already "very good" relations to a higher level.
Joschka Fischer, the former left-wing radical and later Germany's foreign minister, said once that in view of the Holocaust it was incredible that Germany and Israel had "any kind of relationship at all." But more than 60 years since the eyes of the world were opened to the
horrors at Auschwitz, Germany is Israel's most important political and trading partner in Europe behind the United States.
Once unthinkable, the two countries have had full diplomatic relations - something which has not been managed with some of Israel's neighbours - for almost 43 years.
Although Merkel wants Germany to play a bigger role in efforts to achieve peace in the Middle East, this visit is focused on bilateral ties and the conflict with the Palestinians will not be a major topic, experts say.
Berlin has spoken out against Israeli settlements and criticized its military actions in the Gaza Strip, but Merkel will not make the short trip from Jerusalem to Ramallah to meet Palestinian president Mahmud Abbas.
"The visit does not have a high political agenda. It is more of a symbolic visit," said Patrick Mueller from the German Institute for International and Security Affairs.
Such issues may not be entirely absent, however, in talks between Merkel and Israeli Prime Minister Ehud Olmert with German government sources saying on Thursday that there would be no no-go areas in their discussions.
Relations between Merkel and Olmert are seen by analysts as warm, with the 53-year-old conservative chancellor taking a firm line on Iran and visiting Israel just two months after being elected. It took her centre-left predecessor Gerhard Schroeder two years to make the
It was Adenauer, postwar Germany's towering political figure, who made the first step towards a normalisation of ties in a 1951 speech to the German parliament expressing the responsibility of the German people for the Holocaust.
It was not for another nine years that Adenauer met Ben Gurion in New York and it took another five years for the two countries to set up full diplomatic relations, something which communist East Germany never managed.
With Holocaust survivors still alive in Israel, Merkel cannot expect to be welcomed with open arms by everyone.
Her intention to address the Knesset, for instance, not in English but in German - the "language of the perpetrators" as it called by some Israelis - has riled some.
When Johannes Rau became in 2000 the first German head of state to address the Knesset, he did so in German and several Israeli MPs stormed out of the room in protest.
Horst Köhler, Rau's successor and the current head of state, got a warmer reception five years later and included several sentences in Hebrew in his speech.