Angela Merkel, a physicist-turned-politician who grew up behind the Iron Curtain, will become the first female chancellor in German history, under a deal the country's two biggest political parties announced Monday to form an unusual coalition.

Merkel will succeed Gerhard Schroeder, the two-term chancellor and steadfast critic of U.S. policy in Iraq whose government was defeated in national elections three weeks ago.

Merkel, 51, has promised to revive the once-mighty German economy by paring the country's extensive but increasingly unaffordable social safety net. The jobless rate in Germany, the world's largest exporter and third-largest economy, hit a record high of 12 percent this year, and growth has been weak for years.

Merkel has also pledged unspecified steps to improve relations with the United States, traditionally Germany's closest ally, and put behind the tensions of the Schroeder years.

The daughter of a Protestant minister who moved his family to East Germany in 1954, Merkel did not become politically active until after the Berlin Wall crumbled in 1989. The woman who will become the first easterner to head the reunified country has remained for many Germans an enigma, a politician who rarely lets her emotions show.

She works hard to conceal her private life, usually appearing in public with her husband, a Berlin science professor, only once a year at an opera festival in Bavaria.

At a news conference Monday to announce that her Christian Democrats had reached a deal with Schroeder's Social Democrats to form a new government, Merkel almost neglected to mention that she would become chancellor. She didn't smile once while reading a four-minute statement and revealed little of her vision for governing Europe's largest country.

"It was like she was announcing her own funeral," said Gerd Mielke, a political scientist at the University of Mainz.

Pressed by reporters to describe her feelings, Merkel relented -- a little. "I'm doing well, I'm in a good mood," she said. "But I have a lot of work in front of me."

The Christian Democrats are the largest right-of-center group in the country, favoring less regulation of business and tougher immigration rules. They narrowly won a plurality of the vote in the Sept. 18 elections but were forced to enter into an awkward ruling coalition with the Social Democrats, a party with roots in the labor movement, because neither side was able to forge a majority alliance in Parliament with Germany's smaller political parties.

As part of the deal, the Christian Democrats will control the chancellorship, the cabinet-level chief of staff post and six cabinet seats in the federal government. The Social Democrats won the right to fill eight cabinet ministries. The Christian Democrats have control of the presidency, a largely ceremonial post, which was factored into the negotiations.

It will be the first time in almost 40 years that Germany will be ruled by a "grand coalition" of the two parties. How the normally bitter rivals will get along is an open question.

Even Merkel signaled that she had her work cut out for her. When asked if she thought the coalition would prove effective, she tilted her eyebrows and forced a grin before replying. "We can only wait and see," she said.

"The grand coalition, well, this is the response to the will of the electorate," she added. "And I think we have to respect that."

Schroeder's outspoken criticism of U.S. policy in Iraq has been popular in Germany, but voters were unhappy with his government's failure to invigorate the economy.

When he took office in 1998, he told Germans that they should boot him from office if he didn't slash unemployment. This spring, the rate hit 12 percent -- the highest since the end of World War II.

"This coalition must do everything in its power to ensure that the competitiveness of the economy is set straight and that everything will be done to create growth," Franz Muentefering, chairman of the Social Democrats, said at a news conference.

Muentefering would not rule out a job for Schroeder in the new government and said he would continue to play a key role in negotiations with the Christian Democrats as the two sides finalize their power-sharing arrangement. But other party officials said they doubted Schroeder would accept a position. He has not commented and did not appear in public Monday.

Although Schroeder is leaving office, the Social Democrats confounded many political analysts by clinging to power.

Schroeder made a surprise decision in May to call for new elections a year early, after his party lost a series of state elections, largely because of public anger over his cuts to health and unemployment benefits. Pollsters predicted that the Christian Democrats would win handily. But they squandered a double-digit lead during the campaign and barely came out ahead, capturing 226 legislative seats to 222 for the Social Democrats.

In the new government, Foreign Minister Joschka Fischer, one of Germany's most popular politicians and a frequent visitor to Washington, will leave the cabinet. His party, the Greens, will not be part of the new coalition.

His replacement will be a Social Democrat, which means that Schroeder's party will still play an influential role in relations with the United States. German news media reported that possible candidates include Schroeder's defense minister, Peter Struck, and his interior minister, Otto Schily, though both have played down the possibility.

U.S.-German relations have cooled over the conflict in Iraq, although both sides have tried to patch up differences recently. Merkel, who speaks English fluently, will likely receive a better reception in Washington than Schroeder, who is hesitant in English and uses an interpreter.

"I am convinced that good transatlantic relations are important," Merkel said. "That doesn't mean we have to agree on every issue. But there needs to be a good, trusting relationship."

Muentefering and Merkel both said it would likely take another few weeks for the two parties to complete negotiations over policy issues. The new government could take over in mid-November.

Some analysts were already predicting political gridlock and doubted that the alliance would hold together until the next scheduled national elections, four years from now. But others said leaders of both parties believe that Germany needs wrenching changes in its economy.

"They should be able to push through some necessary reform projects," said Lothar Probst, a political science professor at the University of Bremen. "Their positions are much, much closer to each other than they appeared in the election campaign."

Mielke, the University of Mainz professor, said Merkel could find it difficult to keep the grand coalition from fraying and would have to fend off challengers from within her own party. But he said that throughout her career Merkel has often surprised critics, many of whom tend to discount her because she is a woman from the east.

"In reality, she's an extremely tough woman, especially as far as power struggles are concerned," Mielke said. "Once she is endowed with the powers of the chancellorship, I think she could actually do quite well."

Angela Merkel speaks to reporters after the deal for a coalition was reached. The word behind her translates from German to "better."