I have an 2004 E500 and from time to time, I have the same issue. Turning the key will just produce a clicking sound but the engine will not crank. I am lucky because my car has Keyless Go. So, just pressing the button on the gear shift lever starts the car.

My battery went down and I replaced it. After that the key started working and I'm able to start the car with the key also. You might try and unplug the battery for a few hours and then reconnect. This may or may not work - worth a try since it doesn't cost you anything.

If not, then you might have to replace the the ignition key module. Search and you will find people have had similar issues where they solution was to replace the module.

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1986 300E (3/2002) Rear ended and totaled (10/2009)
2000 Xterra (5/2000)
1992 400E (11/2009) -Sold
1986 300E (12/2009) - Sold
2004 E500 Wagon (6/2013) - Sold