The controversy threatened to undermine a show of unity by the world's richest democracies against jihadist terrorism, after 22 people were killed in the Manchester concert bombing this week.
Unusually for such a setpiece event, leaders gave up any pretence of papering over their divisions as they opened the two-day summit in Sicily's ancient hilltop resort of Taormina, which the Italian hosts had hoped would showcase cooperation against deadly flows of illegal migration from nearby Africa.
IN PICTURES: World leaders meet in Sicily for G7 summit
"There is no doubt that this will be the most challenging G7 summit in years," European Union president Donald Tusk said.
The meeting comes days after an eight-year-old girl was among those killed in Manchester, northwest England, by a homegrown suicide bomber. Four more of the victims were aged 14 or 15.
British Prime Minister Theresa May was to issue a call for G7 countries to put more pressure on internet companies to ensure extremist content is quickly taken offline and notified to authorities.
With the Isis group on the retreat in Iraq and Syria, "the fight is moving from the battlefield to the internet", May was to tell her colleagues, aides said, before flying home early to oversee the ongoing "critical" security situation in Britain.
Theresa May talks to Paolo Gentiloni. Photo: AFP
US officials acknowledged they were expecting a difficult discussion on trade after reports that Trump had described the Germans as "bad, very bad" and vowed to stop them selling millions of cars in the United States, during a meeting with senior EU officials in Brussels on Thursday.
Also in Brussels, Trump had fired an extraordinary broadside at NATO allies for failing to pay their fair share of the transatlantic defence bill, and stopped short of endorsing the group's guarantee of collective defence.
Both US and EU officials confirmed the outspoken president had raised the auto trade issue but sought to play down the language used, as Trump shared friendly words with German Chancellor Angela Merkel and other leaders heading into the G7 gathering.
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White House economic advisor Gary Cohn said that trade would be a "big topic" overall after Trump rode to power on an "America First" platform of protectionism.
"We are going to continue to fight for what we believe is right, which is free, open and fair trade, which the president has been very clear on what that means," Cohn said. "We will have a very robust discussion on trade."
The leaders stand in front of their country flags. Photo: AFP
With May and Trump among four new faces in the G7 club, the gathering in Italy was billed as a key test of how serious the new US administration is about implementing its radical policy agenda, particularly on climate change.
Senior officials are preparing to work overtime in a bid to bridge what appear to be irreconcilable differences over Trump's declared intention of ditching the US commitment to the landmark Paris accord on curbing carbon emissions.
Officials acknowledge the summit is effectively about damage limitation against a backdrop of fears among US partners that the Trump presidency could undermine the international order in place since World War II.
For Trump, the talks will be the final leg of his first presidential foray overseas.
The gruelling week-long trip briefly diverted attention from domestic concerns focused on alleged campaign collusion with Russia.
Donald Trump with Paolo Gentiloni at a working lunch. Photo: AFP
But that issue reared up again overnight as it emerged the FBI is examining his son-in-law Jared Kushner's contacts with the Russian ambassador in connection with the probe of alleged interference in the election campaign by Moscow.
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US officials had hoped the globe-trotting trip would enable Trump to position himself as a more statesmanlike figure and he enjoyed largely positive coverage on his stops in Saudi Arabia, Israel and the Palestinian territories, and at the Vatican.
But some of that has been undone by now-viral images of the billionaire tycoon shoving his way past other leaders at a NATO summit in Brussels on Thursday, and by his reported comments on Germany.
North Korea 'will be solved'
The other new face is France's youthful president, Emmanuel Macron, who has vowed to defend the Paris climate change deal agreed in 2015.
Macron met May just before the summit and promised France would do "everything we can" to help Britain in the fight against terrorism.
But he gave short shrift to May's request for Brexit-bound Britain and the EU to negotiate their future trading relationship at the same time as they thrash out the terms of their divorce.
Japan meanwhile was using the summit to air its concerns about North Korea. Meeting Prime Minister Shinzo Abe in Sicily, Trump bullishly promised the problem posed by North Korea's missile and nuclear programmes "will be solved".
By Angus MacKinnon and Jitendra Joshi