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yes - make an enemy out of the most powerful intelligence agency in the world

in fact lets expel their embassy too!

Well, given the alternative and some modest regard for basic human rights (such as, e.g., stated in the German constitution [1]), they are legally bound to do exactly that.

[1] http://dejure.org/gesetze/GG/10.html

Especially since the reports of spying activities from within the american embassy in berlin. In fact, it would have been necessary at this point already to investigate the embassy itself, and to ban the current american embassador if anything were found.

That this wasn't done was illegal.

There is a huge spectrum between cooling foreign relations and making an enemy.

Also, if making an enemy seems to be the only option to retain sovereignty and protect human rights, it's an option that must be considered, at least.

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