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BERLIN — Angela Merkel is poised to become Germany’s first female chancellor after her conservatives sealed a deal Friday with the center-left Social Democrats to form a coalition government tasked with energizing Europe’s largest economy and mending relations with the United States.

The agreement — which addresses crippling unemployment and heralds painful tax increases — came nearly two months after inconclusive elections forced the longtime opponents into talks on a "grand coalition” of Germany’s biggest parties, the first such alliance since 1969.

"We want to make more of Germany and we, the two big parties, want with these policies to win back people’s trust in the ability of politicians,” said a beaming Merkel, 51, who will also be the first chancellor from Germany’s former communist east.

Merkel’s Christian Democrats and outgoing Chancellor Gerhard Schroeder’s Social Democrats were bitter rivals until voters in September gave neither a majority to govern in coalitions with their preferred smaller partners.

The conservatives emerged just ahead of the Social Democrats — setting the scene for a three-week power struggle in which both she and Schroeder claimed the right to lead the new government.

Schroeder eventually gave way in an Oct. 10 deal but extracted a promise that his party would have equal representation in Merkel’s Cabinet and key ministries such as foreign affairs and finance. That deal paved the way for drawn-out negotiations that concluded Friday.

Merkel smiled and looked visibly relieved in speaking to the press afterward, but there was no great outpouring of emotion in keeping with her buttoned-up style.

She for years avoided discussing her role as a woman in politics and only started reaching out to a female audience during the campaign, seeking to soften her image as a twice-married professional with no children. Her husband, Joachim Sauer, a 56-year-old chemistry researcher, keeps such a low profile he’s been nicknamed "the phantom of the opera.”

"None of us were prepared for a grand coalition,” said Social Democrat chairman Franz Muentefering, who is expected to become Merkel’s vice chancellor and labor minister. "There was quite a lot to get over, and that’s what we did in the past few weeks.”

Part of the struggle was over how to go about plugging a $41 billion budget deficit while at the same time boosting a chronically stagnant economy and reducing 11 percent unemployment.

Plans to raise taxes drew sharp criticism from smaller parties, business and labor unions. Still, Merkel should enjoy a crushing majority in the lower house of parliament, where her coalition will hold 448 of 614 seats.

"What is most important is to create new jobs,” Merkel said of her government’s aims.

With that goal in mind, the two parties agreed to raise the retirement age, reduce a range of subsidies, and loosen rigid laws that make it difficult to fire workers — and that industry says discourage hiring.

The conservatives fulfilled the Social Democrats’ demand for a higher income tax for top earners, rising to 45 percent from 42 percent.

And value-added tax will rise to 19 percent from 16 percent in 2007, partly to reduce a payroll levy for unemployment insurance paid jointly by firms and workers. However, much of the money will go to shore up the budget, and contributions to the state pension system also are to rise.

Industry and labor leaders worried that the tax hikes will dim hopes of a recovery that could bring down unemployment. "A VAT rise will strangle our economy even more,” said Klaus Wiesehuegel, head of the IG BAU construction workers’ union.

The leader of the pro-business Free Democrats, with whom Merkel once hoped to form a center-right government, charged that Friday’s pact would not give Germany new direction. Instead, "the ’grand coalition’ has decided on an orgy of tax increases,” Guido Westerwelle said.

Under the Social Democrat’s Cabinet deal, the new foreign minister will be Frank Walter Steinmeier, chief of staff to Schroeder at a time when the outgoing chancellor’s opposition to the war in Iraq cooled relations with Washington.

But Merkel’s party pledged before the election to "reinvigorate” trans-Atlantic ties, and that agenda was reflected in Friday’s coalition accord: "A close, trusting relationship between the U.S. and a self-confident Europe which sees itself as a partner rather than a counterweight is indispensable,” it said.

Merkel now faces more two hurdles before becoming chancellor: The coalition deal still needs endorsement from the two major parties, plus the Christian Democrats’ sister party, the Bavaria-only Christian Social Union, at their conventions Monday. All are expected to approve, clearing the way for parliament to elect Merkel on Nov. 22.

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Associated Press writer Stephen Graham contributed to this report.<