German Chancellor Angela Merkel kicked off the day by treating US President Barack Obama to some traditional Bavarian beer garden hospitality, with frothy ale, pretzels and oompah brass music played by locals in lederhosen.
But after the smiles in the sunshine, both leaders issued a stark warning to President Vladimir Putin over what Obama said was his "aggression" in Ukraine.
"The two leaders ... agreed that the duration of sanctions should be clearly linked to Russia's full implementation of the Minsk agreements and respect for Ukraine's sovereignty," a statement from the White House said, referring to a ceasefire deal struck in the Belarus capital.
The folksy welcome and display of US-German unity contrasted sharply with the leaders' line on Russia, which was excluded from the talks.
EU President Donald Tusk, also attending the meeting at the heavily guarded Elmau Castle retreat, said he wanted to "reconfirm G7 unity on sanctions policy" against Russia, which he said would stay out of the G7 "community of values" as long as "it behaves aggressively with Ukraine and other countries."
The Japanese and Canadian leaders had Saturday made a point of visiting Kiev on their way to Germany to voice support for Ukraine's embattled leaders, as government troops again traded fire with pro-Russian rebels in the east.
A key G7 issue would be "standing up to Russian aggression in Ukraine," Obama said ahead of talks with Britain's David Cameron, France's François Hollande, Italy's Matteo Renzi, Canada's Stephen Harper and Japan's Shinzo Abe.
A recent flare-up in fighting in east Ukraine has left at least 28 dead and sparked fears that the escalation will derail the hard-won ceasefire brokered by France and Germany four months ago.
Greece debt drama
Obama, without naming crisis-hit Greece, also pointed at the European Union's ongoing troubles with debt-hit Athens, mentioning as the top summit issues "the global economy that creates jobs and opportunity" and "maintaining a strong and prosperous European Union".
Merkel -- a champion of tough reforms and austerity in return for loans -- had made a last-ditch effort to resolve the Greek crisis in the days before the G7 summit, huddling during the week with the heads of the IMF, European Commission and European Central Bank in Berlin.
Yet the Greek drama threatened to overshadow the G7 summit, which Merkel has hoped to focus on other pressing global issues -- from climate change and Islamist extremism to women's rights, public health initiatives and the fight against poverty.
Greece's radical-left government and its creditors have been locked in negotiations for five months in a bid to unlock 7.2 billion euros (US$8 billion) in desperately-needed rescue funds.
The European Commission last week presented Greece with a five-page list of proposals, including sales tax hikes and cuts in civil servants' salaries and pensions.
Greek Prime Minister Alexis Tsipras rejected the demands as "absurd", while Athens withheld a 300-million-euro loan repayment to the IMF, opting instead to group four scheduled tranches into a single payment at the end of the month.
Finance Minister Yanis Varoufakis told the Proto Thema daily Sunday that the demands were "an aggressive move designed to terrorise the Greek government" and declared "this Greek government cannot be terrorised".
European Commission President Jean-Claude Juncker said Sunday that Athens had so far failed to provide a list of alternative reforms.
"Alexis Tsipras, my friend, had promised that by Thursday evening, he would present a second alternative proposal... I have never received this alternative proposal," he said.
Juncker had on Saturday snubbed a phone call from the radical leftist leader, with an EU official reportedly saying there was "nothing to discuss", although Tsipras, Merkel and Hollande later spoke by phone.
Ring of steel
Merkel had hoped to use the picture-book setting of lush Bavarian meadows and magnificent mountain peaks to showcase the homely side of Europe's biggest economy while searching for consensus on a catalogue of pressing global issues.
Instead, the event threatens to be overshadowed by two leaders who are absent, said the Munich daily Süddeutsche Zeitung, referring to Tspiras and Putin.
A day after thousands protested against the G7 in largely peaceful rallies, a handful of protesters staged a sit-in Sunday to block the main access road to the castle, meaning journalists were transported by helicopter to the location.
The protesters told AFP they had managed to sneak through the woods unnoticed by police, despite the presence of over 22,000 officers who set up a ring of steel around the summit venue.