The deal, hammered out in six hours of late-night talks between Merkel's conservative Christian Union bloc and the Social Democrats (SPD), also included plans for new anti-terror legislation.
The integration bill would take a carrot-and-stick approach, providing subsidised courses to help newcomers find their way in German life but, in some cases, denying residence permits to those who fail to take up the offer.
"Germany now has an integration law, 50 years after the start of immigration," tweeted the leader of the SPD's parliamentary group, Thomas Oppermann.
Under the new pact seen by AFP, federal funds would be used to create 100,000 jobs for asylum seekers receiving benefits.
Also Read
Those facing imminent deportation would be excluded but asylum seekers taking part in job training would be shielded from expulsion for the length of the programme.
Refugees who abandon state-assigned housing would face unspecified consequences, but waiting periods for acceptance courses teaching German language and customs are to be slashed to six weeks from three months currently.
The right-left coalition also agreed to give more funding, personnel and powers to security forces to combat terrorism.
A significant new provision would allow federal police to deploy undercover officers for attack prevention as well as criminal prosecution.
It would also allow the secret services to step up cooperation with their counterparts from partner states in Europe and NATO as well as Israel.
The draft law is to be completed on May 24 and then presented to parliament, where the so-called grand coalition has a large majority.