German Chancellor Angela Merkel met with Israel's opposition leader Tzipi Livni on Tuesday, the last day of her two-day trip to Israel to receive an honorary doctorate from Tel Aviv University.

The visit to Israel, although preplanned, has been overshadowed by the unrest that has engulfed Israel's regional neighbor Egypt.

According to a member of Merkel's entourage, Livni voiced fears to the German chancellor that Iran may exploit the current instability in the region, reiterating the oft-repeated Israeli calls for tougher sanctions over Tehran's nuclear program.

Many Israelis share Livni's fear that a weaker Egypt could mean greater Iranian influence in the region.

In their meeting, Livni and Merkel also discussed Israel's stalled peace process with the Palestinians. Livni was quoted saying that negotiations were in Israel's national interest, and not a favor to the Palestinians or Europeans.

Talks with the Palestinians collapsed under PM Netanyahu's government over a Palestinian pre-condition that Israel freeze construction in the West Bank and East Jerusalem.

Livni, who heads the centrist Kadima party, said the trust that existed between the Olmert and Abbas administrations needed to be restored.

Merkel was later scheduled to meet with Israeli President Shimon Peres, before receiving her honorary doctorate at Tel Aviv University and departing in the afternoon.

Merkel met with Prime Minister Netanyahu upon arrival Monday, and the two discussed both the Egyptian political turmoil and its political and regional implications, as well as Israel's policies vis-à-vis the Palestinians.

In their talks, the German chancellor defended the Western reaction to the protests in Cairo against criticism in Israel that the United States and Europe were dumping a loyal ally. Merkel also dished some criticism of her own, telling Netanyahu to stop settlement building in the West Bank, which she said is hurting the peace process.