(updates throughout with Merkel arrival)

By Tabassum Zakaria

CRAWFORD, Texas, Nov 9 (Reuters) - President George W. Bush welcomed German Chancellor Angela Merkel on Friday to his Texas ranch where they will seek a common approach to deal with Iran's nuclear program.

Bush extends invitations to Crawford to signal a special relationship and Merkel will spend two days at the 1,600-acre (647.5-hectare) ranch.

Bush, who is fond of showing guests around his property, will take the chancellor and her husband, Joachim Sauer, on a tour of the ranch.

"In Texas when you invite somebody into your home it's an expression of warmth and respect and that's how I feel about Chancellor Merkel," Bush said after greeting the German leader who arrived by helicopter.

He then drove off in his white pickup truck with Merkel in the passenger seat and their spouses in back. Dinner will be pecan-smoked beef tenderloin, green chili-cheese grits souffle, and pecan pie.

Merkel is the second European ally this week receiving special guest treatment. She follows 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.

It contrasts to Bush's chilly relations with Merkel's predecessor Gerhard Schroeder and former French President Jacques Chirac, both critics of the U.S.-led invasion of Iraq.

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.

With commercial interests at stake, Germany has resisted a U.S. call to impose unilateral trade sanctions on Tehran.

'EYE-TO-EYE'

"Strategically, we see eye-to-eye. Tactically, there are some slight differences," Gordon Johndroe, spokesman for the White House National Security Council, said.

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

Bush recently warned of "World War Three" if the Islamic republic acquired a nuclear weapon -- a description 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.

The two leaders were also to discuss Afghanistan, the Middle East, Iraq, climate change, and the Doha trade round.

Daniel Benjamin, an analyst at the Brookings Institution, said U.S.-German relations have improved.

"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; Editing by David Alexander and Vicki Allen)

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