KRUEN- Slugging back beer and sausages, President Barack Obama today celebrated decades of U.S. friendship with Germany over recent challenges and said the country "is proof that conflicts can end and great progress is possible." 

Obama kicked off an overnight visit for the Group of Seven summit of world leaders by focusing on mending relations with host Germany, with a visit to this picturesque Alpine village with Chancellor Angela Merkel.

"This morning as we celebrate one of the strongest alliances the world has ever known my message to the German people is simple: We are grateful for your friendship, for your leadership. We stand together as inseparable allies in Europe and around the world," Obama said.

Obama is closer to Merkel than most heads of state, although their relationship has been tested in the past couple of years, particularly after it emerged that the National Security Agency had tapped Merkel's cellphone. The revelation was particularly chilling in Germany, with its oppressive history of secret government surveillance.

"Although it is true we sometimes have differences of opinion today from time to time, but still the United States of America is our friend, our partner and indeed an essential partner with whom we cooperate very closely," Merkel said through a translator after addressing Obama as "dear Barack." ''We cooperate closely because this is in our mutual interest. We cooperate because we need it. We cooperate because we want it."

Obama and Merkel addressed a timeless Bavarian scene, with music by a festive band. Residents of the village of 2,000 filled the town square wearing traditional dress: wool hats decorated with feathers and goat hair plumes, women in dirndls and men in lederhosen. Well before noon they gathered at long tables covered in blue gingham tablecloths, drinking beer.

"Gruess Gott!" Obama began, which literally translates as "greetings from god" but is the typical Bavarian greeting instead of "good day."

"I have to admit that I forgot to bring my lederhosen but I'm going to see if I can buy some while I'm here," Obama joked. He said when he first heard the G-7 would meet in Bavaria, he hoped it would be during Octoberfest.

"But then again, there's never a bad day for a beer and a weisswurst," Obama said. "And I can't think of a better place to come to celebrate the enduring friendship between the German and the American people."

After his remarks, Obama and Merkel joined one of the tables, toasting tall beer steins, eating pretzels and sausage. The leaders planned to meet privately afterward at the nearby site of the two-day summit of the Group of Seven leading industrial nations to coordinate their agenda before joining their counterparts from Britain, France, Italy, Canada and Japan.

The G-7 meeting at the Schloss Elmau resort is expected to be dominated by discussions of the West's response to the clashes between Ukraine and pro-Russian forces. Russian President Vladimir Putin was ousted from the group last year over his aggressive moves on the former Soviet state. Also high on the agenda are the global economy, terrorism, climate change and trade as Obama negotiates separate pacts across the Pacific and Atlantic.