Merkel spoke today after complaining in a telephone conversation with Russian President Vladimir Putin about a lack of public commitment on Russia's part to last week's Geneva deal aimed at calming tensions.
She said she is convinced Russia could "put the separatists in eastern Ukraine on a peaceful path" and said Kiev had taken "a series of steps" to implement the agreement.
Merkel said it is important to pursue diplomacy and to prepare for Ukraine's May 25 presidential election. But she said ministers also consider "phase two" sanctions, targeted measures that fall short of all-out economic sanctions.