"We share the concerns about certain Russian steps that have been taken there. But we encourage Georgia to maintain the peace, because escalating the conflict is certainly not the solution," Merkel said.

"We support the territorial integrity of Georgia," the German chancellor said.

Germany would seek to play an active role in resolving the conflict through negotiation, with Russian participation, she said, but she added the process could not be postponed indefinitely.

Saakashvili held out the hope of an improvement in relations with Russia following the accession as president of Dimitry Medvedev and said his contacts with the new president had been promising.

"I was positively surprised by a more thoughtful approach... than I was used to sometimes in the past from different interlocutors," he said in apparent reference to former president Vladimir Putin, Russia's current prime minister.

In the light of recent events, Saakashvili queried whether Medvedev was in control. "Is he in charge of the situation? Unfortunately, we don't know," he said.

At the end of May, Russia ordered some 400 railway-repair soldiers into Abkhazia in a move condemned as a breach of the 1994 ceasefire agreement by Georgian officials and Western observers.

Georgia sees their work as preparing the infrastructure for possible large-scale military deployments.

Gas exploration angers Georgian president

Saakashvili expressed outrage at a recent announcement by the Russian state monopoly Gazprom that it would explore for gas in Abkhazia. "This is an absolutely outrageous violation of international law and unheard of in recent international practice anywhere," he said.

On the question of Georgia's wish to join NATO, Merkel said the outstanding conflicts over Abkhazia and another breakaway region, South Ossetia, had first to be resolved.

Georgia needed clear guidelines on how to proceed to fulfil the criteria for membership, the chancellor said, while adding that Georgia would "one day" be part of the Western alliance.

Saakashvili, a firm proponent of NATO membership for Georgia, despite strong Russian objections, acknowledged that the issue was "complex."

"We are being realistic about it. Georgia needs concrete guidelines, concrete criteria," Saakashvili.

He added that on this point there had been "a very good conversation" with the chancellor.

Merkel reiterates support for Georgia

Merkel said the issue of NATO membership was between the alliance and the applicant and not for a third party to decide.

At its summit in Bucharest in early April, the alliance decided not to offer Georgia and another applicant, Ukraine, a Membership Action Plan (MAP).

Germany was one of the main objectors to offering Georgia a MAP - which is seen as a precursor to full membership talks - citing the territorial problems the country faced.

Merkel said Germany supported Georgia's "dynamic course" over recent years with regard to domestic political and economic reform, but she called for the opposition to be drawn further into the parliamentary process.

Earlier in the week, Saakashvili called on Medvedev on to peacefully resolve their countries' standoff. "He must now decide which way he is going to go. Are we going to play Cold War politics or are we going to see a more modern, Europeanized, open Russia," he said.

Saakashvili wants to work with Medvedev

"I think he has a more thoughtful, gentle style but on the ground we have not seen any change yet," Saakashvili said, comparing Medvedev to his predecessor Vladimir Putin. "We want to work with Medvedev. From the conversations I have had with him, several of them, I am obviously cautiously hopeful."

He made the comments after a speech at the Konrad Adenauer Foundation think tank in Berlin in which he accused Russia of stealthily annexing the rebel Georgian region on the Black Sea that broke away in the 1990s and stealing its oil resources.

"The Russians no longer recognize the post-Soviet borders. They are bringing in more troops, more tanks... This is completely inadmissible under international law," he said.

Saber-rattling between Georgia and Russia over Abkhazia has grown louder since April when Moscow said it would establish formal ties with the separatist government.

Russian soldiers are deployed in Abkhazia as part of a ceasefire deal signed after the separatist war and Moscow has recently sent in hundreds of extra peacekeeping troops, saying that Tbilisi was preparing an assault.

Russian peacekeepers increase tension

Tension soared this month when Georgia detained Russian peacekeepers near the sensitive border between Abkhazia and the rest of Georgia.

Medvedev issued a sharp rebuke and the Russian military's deputy chief of staff, General Alexander Burutin, threatened to use force if this happened again.

Saakashvili said Russian generals frustrated at the collapse of the Soviet Union had fuelled the war in Abkhazia and accused Moscow of again seeking to destabilize the region.

"They are doing it again right now. Ignoring it is like saying there is an elephant in the room but let's not talk about it. The elephant is there and it is an issue for everybody.

"The European Union can show Russia the benefits of a peaceful solution and the cost of more conflict," Saakashvili concluded.