Merkel arrived in Kunduz in northern Afghanistan to meet German troops serving there ahead of Christmas celebrations.
She then went on to Mazar-i-Sharif, the major northern city, for talks with Afghan President Hamid Karzai and the US commander of the roughly 140,000 international forces fighting Taliban insurgents, General David Petraeus.
Berlin is to start reducing troop numbers in Afghanistan by the end of next year with a view to pulling out of the country completely by 2014.
"What we have here is not just a warlike situation," Merkel told troops in Kunduz. "You are involved in combat as in war."
"This is a new experience," Merkel added on her third visit to Afghanistan while in office. "We have heard such things from our parents talking of World War II, but that was different because Germany was the aggressor."
Opinion polls suggest that a majority of Germans are opposed to the Afghan mission. The deployment of combat troops is controversial in a country where the legacy of World War II still colours political discourse.
Merkel also spoke out against corruption in the country, saying: "Progress here is not yet as we would like to see."
She was accompanied by Defence Minister Karl-Theodor zu Guttenberg - who also visited Afghanistan last weekend with his wife to meet troops, drawing accusations from opponents of a public relations stunt - and army chief General Volker Wieker.
Germany has 4,800 soldiers serving in the NATO-led International Security Assistance Force in Afghanistan, most of them in the north of the country.
The army announced Saturday that a 21-year-old soldier had died from bullet wounds sustained at a checkpoint. The spokesman said the death was an accident.
The death took to 45 the total number of German servicemen to have lost their lives in Afghanistan in the nine-year international mission against Taliban insurgents.
Karzai's office later released a statement welcoming his meeting with Merkel.
"The president expressed gratitude for the efforts of German republic to train Afghan security forces and termed these efforts as another step towards
a better and stable Afghanistan," it said.
"Chancellor Merkel expressed optimism over the improvement in the security situation in Afghanistan and stressed the need to train, equip and build the capacity of Afghan security institutions."
Earlier this week, German Foreign Minister Guido Westerwelle said the country would start reducing troop numbers in Afghanistan by the end of next year and intended to withdraw from the country completely by 2014.
"At that point, there should be no more German troops" in the war-torn country, he told parliament to prolonged applause.
At a crunch summit in Lisbon last month, the nations of the NATO-led force agreed with President Karzai they would begin putting the battlefield under his control in early 2011, moving Western troops to a support role by 2014.