"We cannot allow the debate on genetic engineering to be oversimplified," Schroeder said in an interview with Der Spiegel magazine. "We have to carefully weigh all the issues including ethics as well as our future living conditions."

Rau had indirectly criticised Schroeder's policy in a speech on Friday that provoked reaction across the political spectrum as Germany struggles to reconcile restrictions on gene research, partly in reaction to Nazi abuses, with business interests.

"I believe there are things we cannot do no matter what the actual or imagined benefits are," Rau said.

SCHROEDER'S VIEW

"Biotechnology is the key technology for this century," said Schroeder, leader of the Social Democrats (SPD). Rau, a former SPD candidate for chancellor, was elected by the SPD and their junior coalition partners for the largely ceremonial office.

"Without it we will hardly be able to secure our prosperity for our children and grandchildren," Schroeder said. "We are already a leading nation in the field. One in five European biotech firms is already located in Germany."

But industry and scientists have called for more scope for research with human stem cells in order that Germany, with its strong industrial tradition, can better compete globally.

A relaxation of laws could enable more research into killer diseases such as leukaemia, Parkinson's disease and cancer.

Schroeder emphasised the government's obligation to create jobs and wealth. While economic prosperity does not justify overstepping moral boundaries, creating jobs is also a moral obligation, he said.

"There are definite limits to the future use and application of genetic engineering: Human dignity cannot be tampered with," he added.