(updates with new Johndroe quotes; changes dateline, previous WACO, Texas)

By Tabassum Zakaria

CRAWFORD, Texas, Nov 9 (Reuters) - President George W. Bush will welcome German Chancellor Angela Merkel to his Texas ranch on Friday where they will seek to show unity on Iran even as Tehran defies the West over its nuclear program.

Bush extends invitations to Crawford, Texas, to signal a special relationship and Merkel will spend two days at the 1,600-acre (647.5-hectare) ranch, where the leaders may go hiking between talks on world issues.

Bush, who is fond of showing guests around his property, will take the chancellor and her husband on a tour of the ranch -- informally known as the Western White House.

"I know he wants to show the chancellor around," Gordon Johndroe, spokesman for the White House National Security Council, said.

Merkel will be the second European ally this week to be treated as a special guest by Bush, coming on the heels of French President Nicolas Sarkozy who on Wednesday was given a tour of Mount Vernon, the Virginia home of George Washington, the first U.S. president.

With just over a year left in office, Bush is determined to keep up the pressure on Iran over its nuclear program.

Iran has refused to agree to U.N. demands to halt nuclear work that could have both civilian and military uses.

Iranian President Mahmoud Ahmadinejad has said Iran's nuclear program is irreversible and that Tehran has 3,000 centrifuges in its underground Natanz plant.

While German companies conduct trade with Iran, the United States has taken a stronger stance against Tehran.

'EYE-TO-EYE'

"Strategically, we see eye-to-eye. Tactically, there are some slight differences," Johndroe said.

Earlier this week Merkel said Germany would support a new round of tougher U.N. sanctions against Iran if Tehran did not address international concerns about its nuclear program.

Bush recently escalated his criticism of Iran by raising the specter of World War Three if the Islamic republic acquired a nuclear weapon, which alarmed some European allies.

Johndroe said the talks on Iran were to be "part of ongoing discussions." U.S. and German officials say they do not expect any major announcements from the ranch summit.

The Bush administration insists that it is committed to pursuing diplomacy on Iran, but also says all options are on the table.

White House spokeswoman Dana Perino said the two leaders would discuss Iran "and the need for our countries to work together on the diplomatic track to get Iran to halt its uranium reprocessing and enrichment."

They were also expected to discuss Afghanistan, the Middle East, Iraq, climate change, Myanmar, and the Doha trade round.

A senior German official, speaking on condition of anonymity, said Merkel and Sarkozy had agreed to voice a common position on Iran, the Middle East peace process, and climate change in their conversations with Bush.

Britain, China, France, Germany, Russia and the United States are expected to meet this month to discuss reports from the International Atomic Energy Agency on Iran's compliance with international demands.

Daniel Benjamin, an analyst at the Brookings Institution, said U.S.-German relations have improved since Merkel took over from Gerhard Schroeder.

"They have a good rapport," he said of Bush and Merkel. "There are no outstanding tiffs. The United States would like to see the Germans be more aggressive in limiting economic dealings between Iran and Germany and turning the temperature down on transactions with Iran." (Additional reporting by Caren Bohan in Texas, Carsten Lietz and Louis Charbonneau in Germany; Editing by David Alexander and Vicki Allen)

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