Speaking at a meeting of young members of her Christian Democratic Union (CDU) party, Merkel said it had not proven possible for people from different cultural backgrounds to simply live side by side in Germany, which is home to some four million Muslims.
"This (multicultural) approach has failed, utterly failed," Merkel told a meeting of young members of her Christian Democratic Union (CDU) party at Potsdam near Berlin.
"We should not be a country either which gives the impression to the outside world that those who don't speak German immediately or who were not raised speaking German are not welcome here," she added.
"The demand for integration is one of our key tasks for the times to come. At the same time, it must be a trademark of Germany to be a country which gives people in our country an opportunity."
The debate comes against a backdrop of US and British concerns over the threat of terrorist attacks by militant Islamists living in Germany, with Berlin toning down such fears.