Iranian Foreign Minister Manouchehr Mottaki delivered the letter to the German embassy in Tehran earlier this week. A German government official who saw the letter told Reuters it criticised Israel and said Germany and Iran should cooperate in dealing with Zionism and solving the Palestinian problem.

"He's repeating the old thinking, which is totally unacceptable to us," Merkel told ZDF state television.

"Israel's right to exist is a key part of our state policy and he calls this into question time and again; and at the same time our offer -- an offer which really gives the Iranian people hope for the future -- is not mentioned once," she added.

"That's not in order and thus does not need to be answered."

Germany and the five permanent members of the United Nations Security Council offered Iran a package of incentives in June to end Tehran's stand-off with the West over its nuclear programme.

Government spokesman Ulrich Wilhelm said earlier on Friday the letter did not mention Tehran's nuclear standoff with the West, or the current fighting in Lebanon and Israel.

Berlin's relations with Ahmadinejad have been soured by his repeated denial of the Holocaust, the Nazi massacre of 6 million Jews, and his call for Israel to be wiped off the map.

Holocaust denial is a crime in Germany punishable by up to five years in prison.

A spokesman for the Israeli embassy declined to comment, saying the letter was an issue between Iran and Germany.

A German government official gave Reuters more details of the letter, on condition of anonymity.

"It talks about how both Germany and Iran have been victims of historical developments," he said. "It also says 'we have to find a solution to the Palestinian problems and Zionism' and so on. It's rather weird," he added.

In May, Ahmadinejad sent President Bush an 18-page letter discussing religious values, history and international relations.

In it, he took swipes at Israel and Washington, both of which are attacked in the letter to Merkel, the official said.

Several thousand people demonstrated in Berlin on Friday against the Israeli bombardment of Lebanon. Protesters shouted "Allahu Akbar" -- "God is Greatest" in Arabic -- and carried posters with slogans like "Israel drinks the blood of our children".

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