"Whoever criticises the pope misunderstood the aim of his speech. It was an invitation to dialogue between religions and the pope expressedly spoke in favour of this dialogue, which is something I also support and consider urgent and necessary," Merkel was quoted as saying by German newspaper Bild on Friday.
"What Benedict XVI emphasised was a decisive and uncompromising renunciation of all forms of violence in the name of religion," Merkel was quoted as saying in an article to appear on Saturday.
The pope, born in southern Germany with the name Josef Ratzinger, ended a six-day visit to his native Bavaria on Thursday.
The pope on Tuesday repeated criticism of Prophet Muhammad by the 14th century Byzantine Emperor Manuel II Palaeologus, who said everything Muhammad brought was evil "such as his command to spread by the sword the faith he preached".
The pope, who used the terms "jihad" and "holy war" in his lecture, added "violence is incompatible with the nature of God and the nature of the soul".
Dialogue between faiths is "crucial" in the wake of Muslim anger over the pontiff's comments on Islam, the Vatican's newly appointed "foreign minister" told AFP on Friday.
"The pope has repeatedly said the question of dialogue between cultures and religions is one of the crucial questions of our time," said Dominique Mamberti, speaking by telephone from Sudanese capital Khartoum where he is papal ambassador.
On Friday, Mamberti was appointed the Vatican's top official for relations with other states, the equivalent of foreign minister of the world's smallest state.
The pontiff's remarks - tucked into an address on Tuesday at a German university where he taught theology - have been interpreted by many experts in interfaith relations as a signal that the Vatican is staking a new and more demanding stance for its dealings with the Muslim world.
Benedict, they say, appears to increasingly view the West's confrontation with radical Islam as a fateful moment in history that demands the Vatican's moral authority - just as his predecessor, John Paul II, reshaped the dimensions of the papacy by openly taking sides in the Cold War.
Experts say Benedict wants more
reciprocity in interfaith relations
The risk for the Vatican is whether it will be perceived in the Muslim world as part of a broader Western cultural and political campaign against Islam.
In the backlash, however, some of the more subtle - yet potentially far-reaching - references have been overshadowed.
The speech suggested deep dismay over the current conditions of Christians in the Middle East and the rest of the Muslim world, said John Voll, director of the Centre for Muslim-Christian Understanding at Georgetown University in Washington.
"This reflects the intention of Pope Benedict to distinguish himself from his predecessor on his approach to interfaith dialogue," said Voll. "And by this, it means more reciprocity."
Voll said the pope may increasingly instruct Vatican envoys to stress issues of forced conversions of Christians and limits on Christian rights and worship.