Pope Benedict XVI has offered his support for the Palestinians' right to a homeland, as he continues a Middle East tour in the West Bank.
Speaking in Bethlehem, believed to be the birthplace of Jesus Christ, the Pope called for a "just and lasting" peace in the region.
He urged Palestinians not to resort to violence and terrorism.
He then held a Mass in Bethlehem's Manger Square before visiting a nearby Palestinian refugee camp.
One of the aims of the pontiff's visit is to preserve a diminishing Christian presence in the Holy Land.
On Tuesday, a row flared over his membership as a teenager of the Hitler Youth, as he paid a historic visit to holy sites in Jerusalem.
Vatican spokesman, the Reverend Federico Lombardi, said the pontiff had "never, never, never" belonged to the organisation, but later appeared to backtrack, saying that he had been a member but his membership was compulsory.
The Pope said in his own 1997 memoirs, Salt of the Earth, that he had been registered with the Hitler Youth while he was at a seminary.
Pope Benedict was met by Palestinian leader Mahmoud Abbas on arrival in Bethlehem.
The BBC's David Willey in Bethlehem says that on his journey from Jerusalem, the Pope was able to see for himself for the first time the barrier that the Israelis have erected in the West Bank.
Israel says it is to prevent Palestinian militants from attacking its population, but Palestinians say it is a unilateral measure to seize occupied land.
Speaking at a news conference at Mr Abbas' residence, the head of the Roman Catholic Church responded to his welcome by expressing support for a Palestinian state.
"The Holy See supports the right of your people to a sovereign Palestinian homeland in the land of your forefathers, secure and at peace with its neighbours, within internationally recognised borders," he said.
Declining population
The current Israeli government of Benjamin Netanyahu has so far refused to endorse the idea of the creation of a Palestinian state.
The Pope said Palestinians should "resist temptations to resort to acts of violence".
He continued his busy day in the town with an open-air Mass and a homily in Manger Square in front of the Church of the Nativity.
The Pope said his heart went out to those caught up in the conflict in Gaza, adding that he was praying for an end to the embargo on the territory.
Although the Christian population of Bethlehem has decreased dramatically in recent years through emigration, the Pope was given an enthusiastic welcome, our correspondent says.
A tiny group of Catholics from Gaza was present, after receiving special permits from the Israeli authorities to travel to the West Bank.
Jerusalem visit
Later in the day, Pope Benedict visited a refugee camp in Bethlehem, populated by Palestinians displaced from their homes since Israel was created in 1948. He will have a further meeting with Mr Abbas before his departure.
On Tuesday, the Pope visited sites in Jerusalem holy to Muslims, Jews and Christians.
He went first to the Dome of the Rock, the first pontiff to do so. It is located on the Temple Mount - a site sacred to all three monotheistic religions, and met the Grand Mufti of Jerusalem, Mohammed Mohammad Hussein.
Then the Pope followed Jewish tradition at the Western Wall, inserting a written prayer in the cracks between the 2,000-year-old stones.
He emphasised the ties that bound Christianity with Islam and with Judaism.
Later at a Mass in the Josaphat Valley, he said it was a "tragic reality" that many Christians had left the region.
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