As a german myself, I find this behavior quite typical for germans. The reasons can be various and your origin can have an impact on interactions. You could edit your question and state your country of origin to make it easier to answer.
Every student in germany has at least 5 years of english lessons (if I'm not mistaken). In general that's enough to understand written english, but still many feel uncomfortable or unable to hold a conversation in english. This depends partly on the age (the older the person, the less likely they speak english) and on the job. Many people just don't need english in their everyday life and therefore cannot hold a conversation in english even if they wanted to.
Typical interactions with strangers
Germans are kind of reclusive... They interact a lot with friends, but as little as possible with strangers. Of course, there are exceptions like people talking to their random neighbor in public transport, but the talked-to neighbor generally feels very uncomfortable in such a situation. They either don't respond at all or deliver some one word replies.
If Forest Gump was a german, he would have rotted on the park bench because no-one would have talked to him.
Strangers vs. not strangers
If you are part of a group like "employees of company X" or "fan of local football team Y" you should find it easier to talk to other members than with complete strangers. You can build on an obscure feeling of "we are similar", in contrast to "they are different".
As sorry as I am to mention this, but xenophobia is becomming an increasing problem, not only in germany. If you look like someone from the Middle East, many people think "terrorist". If you look like someone from Africa, many women think "rapist". It doesn't matter that these things have nothing to do with you or where you come from. If you look too different from the "typical" german, you have an additional barrier to overcome before being friends with someone.
The nod in your direction is meant to tell you "hello, I acknowledge your presence, you are welcome here" without disrupting the conversation. After that, you have to join on your own. It's rather unusual to stop a conversation and focus on a newcomer just to give them a chance to speak. If you want to say something, just do so when there is a small gap in the conversation. Please do not talk over somebody else. There are people who do that, but it's generally considered rude.
How to build friendships
It's quite difficult, if not impossible, to build a friendship with a complete stranger (I'm sure this is true not only in germany). Your best starting point are your colleagues, since you are already part of their group. Starting from there, they might introduce you to their friends that don't work at the same company.
Another possibility are social networks. Maybe you can find facebook groups of social associations or clubs where you live. www.nebenan.de is one of several social networks dedicated to connect people in a neighborhood. You could publicly look for someone teaching you german or something like that.
You could also try volunteering in facilities like animal shelters and take part in dog walking or something like that. Some people find new friends in fitness clubs, joining an orchestra or choir or just going out and drinking a beer at a bar. Whatever you choose, make sure to attend regularily (once a week is enough, but attend at the same day every week), so the regulars get to know you and recognize you as "one of them". In time you can join conversations with them and get to know them better.