The ruling in June by a district court in Cologne outraged Muslims and Jews and sparked an emotional debate in the country.
Although the ban applied only to the Cologne region, doctors across the country refused to carry out operations because of what they saw as a risk of legal action.
Berlin became the first of Germany's states to protect the practice while the national government works on a new law to legalise the operation across the country and overrule the Cologne decision.
Thomas Heilmann, Berlin's senator for justice, said in a statement on Wednesday circumcision could not be prosecuted in Berlin if both parents had given their permission and been informed about the risks of the operation.
The parents had to prove their affiliation to a religious group and a doctor had to perform the circumcision.
"We explicitly welcome Jewish and Muslim life in Berlin. This applies also to the practice of their religions," said Heilmann.
The speed with which national lawmakers agreed in July to pass a new law underscored sensitivity to charges of intolerance in a country haunted by its Nazi past. Merkel said Germany risked becoming a "laughing stock" if Jews were not allowed to practise their rituals.
About 120,000 Jews are registered as living in Germany along with around 4 million Muslims, many of whom are from Turkey.
The Cologne court ruling triggered a highly charged debate in Germany over infants' and parents' rights, religious freedom and the practice of circumcision itself. The row has barely abated since then.
In an editorial in Germany's Sueddeutsche Zeitung on Wednesday entitled "Do you still want us Jews?", Jewish leader Charlotte Knobloch expressed the fury and despair of the community at the tone of the row.
"I'm asking myself seriously whether Germany still wants us. I'm asking myself whether these know-it-alls from the world of medicine, law, psychology or politics who rant about "child torture" or "trauma" have any idea that in doing this they are putting the existence of Germany's tiny Jewish presence into question," she wrote.
The Cologne court, ruling in the case of a Muslim boy who suffered bleeding after circumcision, said the practice inflicted bodily harm and should not be carried out on young boys, although it could be practised on older males with consent.
