Chancellor Angela Merkel and President Joachim Gauck were among about 10,000 people who took part in the rally organised by Muslim groups near Berlin's iconic Brandenburg Gate and the French embassy, where wreaths were laid for the 17 people killed by Islamic extremists in Paris last week.
A group calling itself Patriotic Europeans Against the Islamisation of the West, or Pegida, has been staging anti-Islam protests in the eastern city of Dresden for the last three months.
A woman holds a candle illuminating a sticker reading 'Je Suis Charlie' at a vigil organised by the German Muslim Council. Photo / AP
Attempts to stage similar protests in other German cities, however, have been met with overwhelming opposition.
"Excluding population groups due to their faith or their origin is beneath the dignity of our liberal state," Mrs Merkel said in a speech ahead of Tuesday's rally.
"Hatred of foreigners, racism and extremism have no place in this country.
"We are a country based on democracy, tolerance and openness to the world."
German Chancellor Angela Merkel and German President Joachim Gauck at the vigil. Photo / AP
Mr Gauck told a crowd of several thousand - some with "Je Suis Charlie" placards for the Charlie Hebdo paper in Paris where 12 people were killed - that Germany had benefited from immigration.
"We are all Germany," he said.
Mr Gauck noted there were reasons to be concerned about young German Muslims going to fight in Syria and Iraq, but insisted Germany wouldn't allow itself to be split by extremists from any side.
"We stand against any form of demonisation and ostracism."
Germany has four million Muslim residents, mostly of Turkish origin, who make up about 5 per cent of its population of 80 million.
'This is our way of life!'
Mr Gauck said the "vast majority" of them felt they belonged "to our open society"."Germany has become more diverse through immigration - religiously, culturally and mentally," he said.
"Our answer to the fundamentalism of the Islamist perpetrators of violence is democracy, respect for the law, respect for each other, respect for human dignity.
"This is our way of life!"
Thousands attended the vigil in Berlin. Photo / AP
People at the rally - which started with a wreath-laying ceremony at the French embassy and an imam reciting Koranic verses condemning the taking of life - applauded Mr Gauck's message of inter-faith unity.
Tuesday's vigil and rally was organised by the Central Council of Muslims.
In his opening address, its chairman Aiman Mazyek said: "Today we all want to express our solidarity with the French people.
"The terrorists did not win and terrorists won't win in future. Today we say, along with the French people and many people around the world: 'Je Suis Charlie'."
The vice president of the Central Council of Jews in Germany, Abraham Lehrer, said in his speech that cartoonists were murdered in Paris because they stood up for free expression, police because they sought to protect them, and Jews simply "because they were Jews".
Mr Lehrer said it would be wrong "to suspect all Muslims or even to disparage their religion".
"We completely condemn reprisals such as attacks on mosques."
But he said it was up to Muslims to counter the fear and terror spread by "radicalised, fanatical Islam" in Asia, Africa and the Middle East.
'Hatred in the hearts'
After speeches by Christian, Jewish and Muslim religious leaders, all observed a minute's silence.The Muslim community rally came after 100,000 people took to the streets across Germany Monday in counter-demonstrations against Pegida, and to voice support for multiculturalism.
A police officer runs past burning trash cans on the sidelines of a counter-protest against Pegida in Dresden. Photo / AP
Mrs Merkel, who is often known to avoid controversial issues, has weighed in strongly, condemning Pegida's leaders for having "hatred in the hearts".
Her comments were broadly hailed in the media, but not everyone agreed.
"Naturally, Muslims belong in our society," said Mrs Merkel's former interior minister Hans-Peter Friedrich, a Bavarian conservative.
"But the question is knowing what constitutes the identity of a country, and in Germany it is a Christian identity built on Judeo-Christian roots."
Bild, Germany's top-selling daily newspaper, said the Paris attacks seemed to have shaken the usually unflappable Mrs Merkel, a pastor's daughter who grew up in the communist East.
"She has two issues where, when she speaks, she doesn't sound like she is simply droning on with platitudes: religion and freedom," it said, noting the rare public signs of emotion she showed with France's President François Hollande at Sunday's solidarity march.
"She knows that gestures are now necessary ... it is about freedom and protection from a terrorist war."
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