Speaking to the Bild am Sonntag newspaper, Steinmeier said last month's poisoning of a former Russian spy in England, which Britain and its allies blame on Moscow, was "a very serious incident".
"But we should be at least as worried about the galloping alienation between Russia and the West, the consequences of which stretch far beyond this case," the former foreign minister said, AFP reported.
Moscow vehemently denies involvement in the nerve agent poisoning of former double agent Sergei Skripal and his daughter, which triggered a wave of tit-for-tat diplomatic expulsions between Russia and Western countries.
A dispute over Western intervention in Syria has dramatically added to the tensions in recent days.
Defying Russian warnings, the United States, France and Britain carried out air strikes to punish the regime of President Bashar Assad, a close Moscow ally, for an alleged deadly chemical attack on the town of Douma.
Russia on Saturday failed to win UN backing for a resolution that would have condemned the "aggression" against Syria, highlighting Moscow's isolation on the international stage.
Steinmeier said while it was right to show Russia its actions have consequences, as demonstrated by the sanctions imposed over the annexation of Crimea and the conflict in Ukraine, "we can't abandon direct dialogue".
He also cautioned against demonizing an entire nation.
"Independently of Putin, we can't declare the whole of Russia, the country and its people, as our enemy," he said, warning there was "too much at stake".
On Syria, Steinmeier said there could be no improvement on the ground until US President Donald Trump and his Russian counterpart Vladimir Putin engaged with each other in a constructive manner to try to negotiate a solution.
"Of course you can't do it without the regional neighbors in the end, but everything begins with the US and Russia," he was quoted as saying.
"Putin and Trump owe it to the world to take the first step."