The mass-circulation daily Bild said in an article to be published Tuesday that Merkel warned the board of her conservative Christian Democratic Union (CDU) that Germany must restore legal protection for circumcision.
"I do not want Germany to be the only country in the world in which Jews cannot practice their rites," Bild quoted Merkel as saying, citing several CDU members who attended the meeting.
"Otherwise we would make ourselves a laughing stock among nations."
Merkel's centre-right government has pledged to take quick action to protect the right of Jews and Muslims to circumcise baby boys on religious grounds, and voiced concern about the ruling by the court in Cologne published in June.
The court said the removal of the foreskin for religious reasons amounted to grievous bodily harm and was therefore illegal, in a judgment that prompted an outcry at home and abroad.
Diplomats admit that the ruling has proved "disastrous" to Germany's international image, particularly in light of its Nazi past, following uproar from religious and political leaders in Israel as well as Muslim countries.