Benedict prayed that God "grant Israelis and Palestinians courage to end long years of conflict and division, and to embark resolutely on the path to negotiation."
Israel, backed by the United States, opposed the Palestinian statehood bid, saying it was a ploy to bypass negotiations, something the Palestinians deny. Talks stalled four years ago.
Senior Palestinian official Saeb Erekat said that in a meeting with the pope last week, Palestinian President Mahmoud Abbas "emphasized our total readiness to resume negotiations." The Palestinians have not dropped their demand that Israel first stop settlement activities before returning to the negotiating table.
Hours earlier, in the ancient Bethlehem church built over the site where tradition holds Jesus was born, candles illuminated the sacred site and the joyous sound of prayer filled its overflowing halls.
Overcast skies and a cold wind in the Holy Land didn't dampen the spirits of worshippers in the biblical West Bank town. Bells pealed and long lines formed inside the fourth-century Church of the Nativity complex as Christian faithful waited to see the grotto that is Jesus' traditional birthplace.
Duncan Hardock, 24, a writer from MacLean, Virginia, traveled to Bethlehem from the republic of Georgia, where he had been teaching English. After passing through the separation barrier Israel built to ward off West Bank attackers, he walked to Bethlehem's Manger Square where the church stands.
"I feel we got to see both sides of Bethlehem in a really short period of time," Hardock said. "On our walk from the wall, we got to see the lonesome, closed side of Bethlehem ... But the moment we got into town, we're suddenly in the middle of the party."
Bethlehem lies 10 kilometers (6 miles) south of Jerusalem. Entry to the city is controlled by Israel, which occupied the West Bank in 1967.