The package includes EUR 1 billion in military assistance and a further EUR 350 million in support for Ukraine's energy sector.
Merz, who is accompanied by several ministers, said his presence in Kyiv showed Germany would not be intimidated, adding that the drone attack taking place during the visit would not frighten it either.
He called on Russia to "end this senseless war" and join peace talks.
In a post on X, Merz said the relationship worked both ways.
"Germany is helping Ukraine. But Ukraine is also helping us," he wrote, pointing to its experience in areas such as drone defence, as well as orders worth billions for German industry.
He said that agreements on this had been signed on Sunday.
"This partnership is not a one-way street," the German chancellor added.
Speaking alongside Merz at a joint news conference, Ukrainian President Volodymyr Zelensky accused Russian President Vladimir Putin of trying to weaken Ukrainian resistance by escalating attacks on Kyiv and other cities.
He said Moscow was deliberately targeting civilian infrastructure.
Zelensky also said the US was currently in contact with both Ukraine and Russia and was proposing, in one form or another, to organise a technical-level meeting in a three-way format by the end of October.
Energy was also on the agenda at Sunday's talks.
The Ukrainian and German energy ministers discussed supplies of gas to Ukraine via German infrastructure, according to officials.
Talks also covered the involvement of European companies in work on Ukrainian gas storage facilities.
Ukraine had earlier said it was interested in increasing its imports of liquefied petroleum gas (LPG) and had proposed that European firms store gas in its underground sites.
(al)
Source: IAR, PAP