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In the 35th, Italy goalkeeper Gianluigi Buffon preserved the lead by swatting away a long shot from Sami Khedira -- and Balotelli doubled the lead a minute later.
To start the second half, Germany coach Joachim Loew brought on Miroslav Klose for Mario Gomez at center forward and replaced Lukas Podolski with Marco Reus on the wing.
With Germany appearing slightly more organized, Lahm had a great look at the goal in the 49th but shot way over the bar.
"If we had scored earlier, there could have been more for us," Loew said. "The disappointment is great. Nobody is speaking in the dressing room. The players are crying. ... But I am not going to question everything we've done. This team has great quality. It will continue to develop and learn."
Buffon made another impressive save in the 62nd, leaping to push a free kick from Reus off the bar.
While Italy largely sat back and protected its lead in the second half, the Azzurri did produce some dangerous counterattacks. Marchisio shot just wide in the 67th and 75th and substitute Antonio Di Natale missed another chance in the 82nd.
Di Natale came on in the 70th after Balotelli went down with a cramp to his left leg.
White-clad German fans greatly outnumbered Italian supporters, unveiling a huge banner before kickoff that featured a giant "G" for Germany. However, most of the stadium was filled with Polish fans cheering for Italy.
"We're living a dream along with millions of Italians," Italy defender Giorgio Chiellini said. "We're going to enjoy this victory a little longer, then we'll think about Sunday, because we want to continue dreaming."
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Lineups:
Germany: Manuel Neuer, Holger Badstuber, Jerome Boateng (Thomas Mueller, 71), Mats Hummels, Philipp Lahm, Sami Khedira, Toni Kroos, Mesut Oezil, Bastian Schweinsteiger, Mario Gomez (Miroslav Klose, 46), Lukas Podolski (Marco Reus, 46).
Italy: Gianluigi Buffon, Federico Balzaretti, Andrea Barzagli, Leonardo Bonucci, Giorgio Chiellini, Daniele De Rossi, Claudio Marchisio, Riccardo Montolivo (Thiago Motta, 63), Andrea Pirlo, Mario Balotelli, Antonio Cassano (Alessandro Diamanti, 57).
[Associated Press;
Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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