The 24-year-old Briton, who crashed heavily at the Nuerburgring in his debut 2007 season, was surprisingly ahead of the championship pace-setters with a best lap of one minute 32.149 seconds in the afternoon.
The performance was a rare positive for the McLaren [ Images ] driver, who has struggled to score just nine points in eight races in an uncompetitive car and is 55 points adrift of championship-leading compatriot Jenson Button [ Images ].
The last time he topped a practice session was in Bahrain on April 24 and McLaren have not finished in the points in their last four races.
"We've still got a long way to go but...these new upgrades are pushing us in the right direction," said Hamilton, whose car had a revised floor and aerodynamics for engine partners Mercedes' [ Images ] home race.
"It's a work in progress, but the guys back at the factory have done an incredible job to get these parts to the circuit. I've even heard of one guy working a 36-hour non-stop shift to build these parts, which is incredible."
"It's still early days, and we shouldn't get ahead of ourselves, but I'm hopeful of being able to get into Q3 [the final phase of qualifying] tomorrow and look at scoring a couple of points on Sunday afternoon."
Germany's [ Images ] Sebastian Vettel [ Images ], hoping to be his country's first home winner since Michael Schumacher [ Images ] retired, was second quickest for Red Bull in 1:32.331 after Australian team mate Mark Webber [ Images ] topped the morning timesheets in 1:33.082.
The 22-year-old German won the last race in Britain, his second victory of the season, but has not competed previously in Formula One at the track in Western Germany's wooded Eifel mountains.
"It was quite tricky this afternoon as the circuit was still very slippery, making it hard to get a good lap," said Vettel, who lost track time in the morning with an engine problem.
"On top of that, the wind is very heavy and is playing some tricks," he added.
Brawn GP's Button, who had suggested on Thursday that Webber could be more of a threat than Vettel, was second fastest in a damp and chilly first session and then third after lunch when it was mostly dry.
Webber, still chasing his first win after seven and a half years in the sport, was fourth in the afternoon.
"Silverstone was one that a lot of people had money on me for and I finished second. We'll see what happens here. I'm looking forward to it," he had said on Thursday.
"I've had a lot of pretty good races here," he added. "We know what we have got to do."
Italian Giancarlo Fisichella [ Images ] was a surprise fifth for Force India [ Images ], yet to score their first point in Formula One, in the morning while team mate Adrian Sutil [ Images ] was sixth in the afternoon.
Button's Brazilian team mate Rubens Barrichello [ Images ], 23 points adrift of the Briton (64 points) after eight races and just two clear of Vettel, was 12th and seventh respectively.