Merkel said EU leaders were doing their "level best" to reach a compromise on a treaty and she was to meet the British and Polish leaders to press the case.
"We are working hard, but the problems remain unresolved," Merkel said before the talks with Kaczynski. "But everyone is trying."
Merkel and French President Nicolas Sarkozy proposed a compromise about the EU voting system during talks in the early hours of Friday with Poland's President Lech Kaczynski, but it remained unclear if the Polish leader would accept the suggestion.
The Polish news agency PAP reported that earlier in the day Kacyznski was not optimistic and convinced he held the most advantageous position for Poland.
"Poland is not in the habit of withdrawing when it is in the right," he said.
More nations register opposition
Germany and its allies want the new treaty to update the EU's rulebook for the 21st century, but Poland is against the voting system and Britain has also announced it has several doubts while the Czech and Dutch governments also have misgivings.
Merkel, whose country holds the EU's rotating presidency until the end of the month, said she wants agreement on a broad outline of a treaty at the summit so that it can be written over the next six months by an inter-governmental conference.
The new treaty is deemed necessary after the collapse of the proposed constitution, which French and Dutch voters' rejected two years ago and sent the bloc into an extended "period of contemplation."
Caught between two Poles?
The German chancellor hoped to use a series of bilateral meetings on the sidelines of the summit to win over Britain, Poland, the Netherlands and the Czech Republic.
But after little progress was made on the first day, she had a long day ahead amid expectations for the negotiations to drag into the night -- and possibly the weekend -- in a classic EU wrangling marathon.
Poland is threatening to wreck efforts to forge a new institutional treaty because it believes it will lose decision-making power under the so-called double majority voting system proposed by Germany.
On Friday, Polish Prime Minister Jaroslaw Kaczynski, the president's twin brother who did not attend the summit, said he would be willing to consider other options if his country's plan on voting rules did not get approved at the summit.
"If there is no agreement on the square root (voting plan), then we could talk about other solutions," Kaczynski told a news conference, according to Reuters news service.
He added that Poland wanted to "moderate the revolution" that the treaty plan would bring to the EU.
His brother meanwhile suggested that the current system for distributing decision-making
votes in the bloc agreed in 2000 should be extended until 2020.
Blair's last "red lines"
British Prime Minister Tony Blair, attending his final EU summit, on the other hand warned there were four "red lines" concerning national control over foreign policy, the judicial and police system, or tax and social security rules that he would not cross in the search for a compromise.
The Dutch want a bigger role for national parliaments in the new treaty while the Czechs sympathize with Poland in opposition to the proposed voting rules, though some experts have said that support is only half-hearted.
Poland, whose leaders have said it is "willing to die," appeared after talks broke up late Thursday to be moving as a number of different proposals were circulated to accommodate Warsaw.
Further discussions required
"There are proposals which could be a solution equivalent to our proposition, but they need to be discussed some more," Polish Foreign Minister Anna Fotyga said, adding that meetings with "key partners" would follow.
After his debut on the EU stage, French leader Sarkozy said he had seen "a strong willingness to find a compromise," but that soothing Poland's fears could prove difficult.
As the first day of talks stretched into Friday, Sarkozy made a compromise solution to Poland in a bid to persuade it to drop its opposition to voting procedures, said his spokesman David Martinon.
Under the proposal, a small group of countries who had almost enough votes to block a decision would be able to have it re-examined, but a Polish source told the AFP news agency the compromise "doesn't go far enough" and added that Warsaw had made a counter-proposal, signaling that debate on the issue was far from over.