Merkel on Thursday accused the far-right Alternative for Germany (AfD) party of using violent protests over the Chemnitz stabbing to stir up ethnic tension.
After the fatal stabbing in Chemnitz, its leaders said the violent riots that followed were understandable.
Bjoern Hoecke criticized the memorial in Berlin to victims of the Nazi Holocaust as a "monument of shame."
"It is clear to everyone that the chancellor is going into her last term."
"The AfD is a great hope for many people, not only in Germany but also for us in Israel and in many Western countries."
Failure to form a government in Europe's largest economy could have implications for everything from euro zone reforms to relations with post-Brexit Britain.
In a stab at the AfD, Netanyahu calls on Germany to strengthen elements owning up to responsibility for the past.
The passage of time and the frail human memory gradually diminish the impact of the Holocaust on arresting racist, xenophobic and antisemitic ideas and movements in Europe and elsewhere.
Frauke Petry, who was long considered the AfD's most recognizable face, said she would take up her seat but would not be part of AfD's parliamentary group.