By Erik Kirschbaum and Guy Faulconbridge
BERLIN/BRUSSELS (Reuters) - On the eve of Britain's bid to renegotiate its European Union membership, Queen Elizabeth charmed Germany's Angela Merkel, Europe's most powerful leader, who Prime Minister David Cameron hopes will help him strike an EU reform deal.
Cameron, who won an unexpectedly decisive victory in a national election last month, has promised to recast Britain's relationship with the 28-member bloc and hold a referendum on membership by the end of 2017.
He is due to set out his goals over dinner with other EU leaders in Brussels on Thursday at a summit that has been overshadowed by worries than another EU member, Greece, may default and crash out of the bloc's single currency.
Diplomats said Cameron will use the summit as a launchpad for his renegotiation but avoid setting out detailed demands as he has already met most of the 27 other leaders in a flurry of visits since the May 7 election.
Cameron was due to have talks with Merkel in Berlin late on Wednesday, hours after the German chancellor showed the 89-year-old monarch around her office opposite the German parliament, pointing out the site of the Berlin Wall, which fell in 1989.
"There was the Wall just behind the Reichstag," Merkel, wearing a pink jacket, told the queen who sported a white summer coat and hat. "I lived in East Germany."
The German leader is sometimes nicknamed Europe's "summit queen" because of her pivotal role in forging EU compromises.
The British queen earlier took a short boat tour on the Spree River which runs through central Berlin, cheered on by thousands of well-wishers standing on the banks.
Cameron is betting Merkel is so determined to keep Britain in the EU that she will help him achieve reforms he can sell to the British people, even though other leaders have warned his drive to change EU treaties will be difficult to achieve.
Investors and allies, including the United States, say Britain's global influence and its role as a financial center for Europe would be diminished if it quits the world's biggest trading bloc.
Cameron says he wants to stay in a reformed EU but he has also said that he would not be heartbroken if Britain left.
London spurned invitations to become a founder member of the "Common Market" in 1957, then had two applications vetoed by France before it finally joined in 1973, demanding a first renegotiation just a year later under Harold Wilson.
In 1975, British voters decided 67-33 percent to stay in the European Economic Community. Opinion polls show British voters are more evenly divided now, with a little over half in favor of membership.
Germany and France, the most powerful EU members, are skeptical of immediate treaty change and worry that Cameron's demands could prompt other EU members to start asking for concessions, leading to an unraveling of the bloc.
The most difficult British demand may be a limit on in-work benefits for EU migrants, something that has aroused anger in Poland and other eastern states, which do not want their nationals treated as second-class citizens.
Cameron also seeks guarantees that the euro zone will not vote as a bloc in the EU to impose rules on non-euro members like Britain, and a push for a transtlantic free trade agreement and to expand the EU's single market into new areas.
Jean-Claude Juncker, head of the executive European Commission, appointed one of the most senior Britons in the EU civil service, Jonathan Faull, to head a new Task Force to deal with "strategic issues related to the UK referendum".
Cameron has said he wants to hold the referendum by the end of 2017, but his partners are urging him to end the uncertainty sooner, possibly in 2016.
"It is a process that could take many months, considerably longer than many months," said a senior EU diplomat.
(Additional reporting by Kylie MacLellan and Alastair Macdonald)