Pope Benedict blesses thousands of faithfuls in St Peter's Square
He is expected to appeal for peace in war-torn Syria.
The pontiff was to pronounce the 'Urbi and Orbi' blessing from the church to the world at 11am GMT, hours after thousands of Palestinians and tourists thronged the streets of Bethlehem, where Christians believe Jesus Christ was born.
The most senior Roman Catholic bishop in the Middle East appealed for peace in the conflict-torn Middle East and issued a special call for efforts to resolve the Israeli-Palestinian conflict during the Bethlehem midnight mass.
"Only justice and peace in the Holy Land can reestablish balance and stability in the region and in the world," Patriarch Fuad Twal told a crowd packed into the St. Catherine church, which adjoins the Church of Nativity.
For Palestinians, this year's celebration carries special significance, coming as it does after the United Nations granted them upgraded status, and the UNESCO agency designated Bethlehem's Church of the Nativity a World Heritage Site.
"From this holy place, I invite politicians and men of good will to work with determination for peace and reconciliation that encompasses Palestine and Israel in the midst of all the sufferings in the Middle East," said Twal.
He hailed the UN upgrade, saying that this "recognition should be a decisive step towards peace and security for all." He urged the faithful to offer prayers for "our brothers and sisters in Syria, who are dying mercilessly… (and) the people of Egypt who are fighting for national agreement, freedom and equality.
During a Christmas Eve mass at the Vatican, the pope also called for peace in Bethlehem "and all those places where the Lord lived, ministered and suffered." "Let us pray at this time for the people who live and suffer there today.
Let us pray that there may be peace in that land," he said. "Let us pray that Israelis and Palestinians may be able to live their lives in the peace of the one God and in freedom," he added.
The pontiff prayed for Lebanon, Syria, Iraq and neighbouring countries, "that there may be peace there, that Christians in those lands where our faith was born may be able to continue living there, that Christians and Muslims may build up their countries side by side in God’s peace.
Earlier, under nearly cloudless blue skies and a warmer than usual December sky, thousands of tourists and Palestinians, both Muslim and Christian, lined the route to welcome the Christmas procession into Bethlehem. Among those celebrating in Manger Square were also hundreds of foreign tourists.
Canadian tourist Joan Cross, 58, was beaming as she watched the procession. "It's just magical," she told AFP. "I've waited 20 years to come as a Christian pilgrim. "My mum and I always wanted to come together, but she passed away aged 97 last year, unfortunately, so this trip is really for both of us."
Meanwhile in the United States, the organisation responsible for monitoring North American airspace helped with the important task of helping children track Santa Claus's progress as he completes his whirlwind journey around the globe.
The Santa tracker set up by the North American Aerospace Defense Command (Norad), a US-Canada joint operation, said that at 8:30am GMT, Santa and his overworked reindeer were passing over Canada's Northwest Territories, having delivered more than 6.3-billion gifts after nearly completing his annual journey.
The website, www.noradsanta.org, is available in eight languages and allows children to find Santa's location and upcoming stops on his trip.