He is viewed as the Pope who helped improve relations between the Vatican and Israel, while also providing open support for the recognition of a Palestinian state.
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As the news of Pope Benedict's retirement spread, Palestinian Catholics expressed their shock at his decision and their fears that it may reduce the authority of the church and the next Pope.
“We want the representative of the Holy See to be supportive of the marginalised, of the downtrodden and in this case, the Palestinians who are living under a brutal Israeli occupation,” said Zoughbi Zoughbi, the director of the Wi'am Palestinian Centre for Conflict Resolution.
“Anyone who comes into this position [of pope] has the responsibility of correcting injustices in all four corners of the world,” Mr Zoughbi said as he sat with friends in a café in Bethlehem.
Many were still digesting the shock news and could do little more than express their surprise and disappointment at Pope Benedict's move. It was far too early to even think about a replacement, they said, but all stressed that as Christians in the Middle East, they needed "a strong Pope".
“It is a decision that will not be welcomed by many Catholics here,” said Michel Nasser, who founded the Bethlehem Peace Centre.
“It leaves the church in a vulnerable position and could open a new front that challenges the church hierarchy,” he warned.
The Vatican's support for the Palestinians' successful bid to upgrade their status at the United Nations to the same as the Holy See – a non-member observer state – was welcomed by Christians from Bethlehem to Nazareth and beyond.
"It is hoped that this initiative will encourage the commitment of the international community to finding a fair and lasting solution" to the conflict between Israel and Palestine, a statement released by the Vatican after the UN vote on November 29 read.
Israel's President Shimon Peres expressed his sadness at Pope Benedict XVI's decision to resign, describing him as a great thinker with “the sincerity of a great believer, the passion of a peace-maker and the wisdom to relate to changes in history without changing his values”.
“Under his leadership the Vatican has been a clear voice against racism and anti-Semitism and a clear voice for peace. Relations between Israel and the Vatican are the best they have ever been and the positive dialogue between the Catholic Church and the Jewish people is a testament to his belief in dialogue and cooperation."
The Latin Patriarch of Jerusalem, Fouad Twal, thanked Pope Benedict for his commitment to peace in the Middle East.
“Everyone remembers the journey of the Holy Father to the Holy Land in 2009 and to Cyprus in 2010. These were events of strong symbolism for Christians, but also for Jews and Muslims,” Patriarch Twal said in a statement.
