Germany's Merkel sees "new chapter" in Iraq ties

German Chancellor Angela Merkel and Iraqi Prime Minister Nuri al-Maliki shake hands after a news conference following talks in Berlin July 22, 2008.

BERLIN (Reuters) - Security improvements in Iraq could open a "new chapter" in relations between Berlin and Baghdad, German Chancellor Angela Merkel said on Tuesday.

Violence in Iraq has dropped to its lowest levels since early 2004. Iraqi Prime Minister Nuri al-Maliki met Merkel on Tuesday to promote a "new image of Iraq" and invite German firms to invest in his country.

Germany opposed the 2003 U.S.-led invasion of Iraq and has refused to send troops to the country. But the government has made clear in recent weeks it hopes to reestablish business ties.

"We have the possibility of opening a new chapter in the relations between Germany and Iraq," Merkel said at a joint news conference with Maliki.

"I'm happy to see that the security situation in Iraq is improving step by step. That is a precondition for economic and political reconstruction."

She said Berlin could offer Iraq technological know-how and Maliki referred to cooperation in the cement and steel sector, but the two leaders did not give any further details.

"The Iraq of today is not the Iraq of six months ago," Maliki said. "The security situation has improved such that German firms can come back."

(Reporting by Kerstin Gehmlich; Editing by Stephen Weeks)