"We are heading into these talks in the knowledge that we're the strongest force" at the national level after September 24th elections, Merkel said.
She added about Sunday's election defeat in the western state of Lower Saxony that "I don't see the outcome ... as a weakness" and stressed that her CDU had won three state elections this year.
The Lower Saxony vote took on outsized significance coming just three weeks after the national election that handed Merkel's conservatives their worst result in decades, while marking a breakthrough for the far-right AfD.
Merkel still won a fourth term, but to form a government she must now forge an alliance with the left-leaning Greens and the liberal and pro-business Free Democrats (FDP), with talks starting Wednesday.
The political poker game could drag on well into 2018, given stark differences on flashpoint topics such as the more than one million asylum seekers who came to Germany since 2015, EU politics and climate policy.
The CDU's Bavarian allies, the CSU, have signalled a tough stance on immigration to win back voters who have drifted to the AfD.
The unlikely three-way alliance that could make up Germany's next government has been dubbed "Jamaica" because the parties' colours match the Caribbean country's flag - black for Merkel's conservatives, yellow for the FDP, and green for the Green party.