As coalition negotiations between Merkel's Christian Democrats (CDU) and the SPD got under way, her conservatives named respected CDU veteran Wolfgang Schaeuble to head the Interior Ministry, a position he also held under former Chancellor Helmut Kohl.
Schaeuble, 63, whose relations with Merkel grew strained when she helped oust him as CDU leader in 2000 amid a party funding scandal, is joined in the cabinet by Edmund Stoiber and Horst Seehofer, top figures in the CDU's sister party, the Christian Social Union (CSU).
Both Stoiber, 64, who is slated to become economy minister, and Seehofer, 56, who was named agriculture and consumer protection minister, have a history of clashes with Merkel.
Seehofer resigned abruptly from his post as deputy leader of the joint CDU/CSU parliamentary group one year ago after a battle with Merkel over health reform.
In recent days she tried to get another CSU politician, Michael Glos, named as defence minister to prevent Seehofer's appointment, but CSU chief Stoiber blocked that move.
Merkel has a history of sidelining party rivals and that has left her with few experienced conservative allies for top posts. Her party's unexpectedly poor result in the 18 September election also curbed her ability to dictate who will be in her team.
"I expect this cabinet to work as a team," Merkel said as the ministers were unveiled on Monday.
With rivals from the SPD and her own conservative ranks in the cabinet, Merkel will be walking a fine line as she tries to reconcile conflicting personal and policy objectives.
Merkel's conservatives were forced into coalition talks with outgoing Chancellor Gerhard Schroeder's SPD after they failed to win enough support in last month's election to govern with their reform-minded allies, the Free Democrats (FDP).
Formal talks between the CDU/CSU and the SPD began on Monday with a three-hour discussion aimed at securing consensus over the broad policy themes to be pursued by the new government.
Top priorities will include bringing the budget deficit back within EU limits by 2007, addressing Germany's chronic unemployment problem and untangling the web of conflicting state and federal powers that have hampered past governments.
"There was a good spirit to the discussion but that should not conceal the fact that we will have very, very hard negotiations," Merkel said after the meeting.