Netanyahu joined Merkel for a private dinner at her Berlin chancellery ahead of a regular meeting between most of their cabinet ministers Thursday that risks being overshadowed by the diplomatic storm.
The Israeli leader arrived from Prague where he had applauded the Czech Republic for its "friendship and courage" as the only European state to have opposed the Palestinian status upgrade at the United Nations last week.
Prague joined Israel, the United States and Canada in opposing the bid as the UN General Assembly Thursday approved non-member observer status for Palestine by an overwhelming vote.
"Thank you for your country's opposition to the one-sided resolution by the United Nations, for your friendship, for your courage," Netanyahu told reporters following talks with his Czech counterpart Petr Necas.
"The Czech Republic stood with the US, Canada and a handful of other countries against the prevailing international current, but history has shown us time and again that what is right is not what is popular."
Setting a bitter tone for the next leg of his trip, Netanyahu told German daily Die Welt that he was "disappointed" that Berlin had abstained from voting despite reported pleas by Israel to reject the resolution.
"People are convinced that there is a special relationship between Germany and Israel," he said.
"I think Chancellor Merkel was of the opinion that this vote would in some way foster peace. In fact the opposite is the case: after the UN vote, the Palestinian Authority under president (Mahmud) Abbas is making plans to join with the terrorists of Hamas."
Netanyahu's first European visit since the Palestinian UN upgrade comes amid mounting international calls for Israel to drop plans to build 3,000 new settler homes in a highly contentious strip of the occupied West Bank near Jerusalem.
He announced the move in reaction to the Palestinian success at the UN and has refused to go back on the decision despite strong international condemnation.
In Prague Wednesday, he insisted he was also committed to peace and "a two-state solution of two peoples."
"Israel is committed to a genuine peace, a genuine and durable peace, for peace to endure, it must be a peace that we can defend," he said.
"Unfortunately on Thursday, the Palestinians asked the world to give them a state without providing Israel with peace and security in return," Netanyahu said, adding that the "UN resolution completely ignored Israel's security."
France, Britain, Spain, the European Union, Denmark, Sweden, Australia and Egypt have all summoned the Israeli ambassadors to protest the plans, which also drew criticism from Russia and Japan.
Germany, long considered Israel's closest ally in Europe with ties rooted in the country's bid for atonement over the Nazi Holocaust, stopped short of such a move. But Merkel sharply condemned the policy as potentially torpedoing hopes for peace and the viability of a Palestinian state.
"Israel is undermining faith in its willingness to negotiate and the geographic space for a future Palestinian state, which must be the basis for a two-state solution, is disappearing," her spokesman Steffen Seibert said Monday.
Media reports had said this week's talks in Berlin could even be called off due to the friction.
Israel's stance has also worried the United States, its traditional top ally, which asked Netanyahu to reconsider the decision. But Netanyahu, who is facing stiff opposition at home ahead of a snap election next January, has refused to go back on it.