Francis rolled into the square standing in a white open jeep, as local Christians, and others from Europe, Africa and Asia belted out hymns and waved national and Vatican flags.
The main stage set up for the pontiff, who arrived early Sunday by helicopter from Jordan, was adorned with a giant tableau depicting Jesus's birth in Bethlehem.
From dawn, wave upon wave of pilgrims had flooded into the buzzing square, through barriers and metal detectors set up by watchful Palestinian security forces.
Francis had insisted his three-day visit to the Holy Land would be "purely religious", but he flirted with the region's sensitive politics by climbing out of his jeep in Bethlehem before the mass, as his convoy passed near the controversial separation wall erected by the Israelis.
Flanked by anxious Palestinian security guards, he walked over to the eight-metre (26-foot) high concrete barrier topped by a guard tower.
Bowing his head in silent prayer, he paused for several minutes in front of the graffiti-daubed barrier, his right hand and forehead resting against the concrete.
"Pope we need to see someone to speak about justice. Bethlehem look like Warsaw ghetto. Free Palestine," read one bit of graffiti in English.
Pilgrims said they hoped that Francis's presence here could bring real change on the ground in a volatile region.
"His stop at the wall means a lot. We hope acts like this can help stop the wall being completed," said Farid Abu Mohor, a Catholic from nearby Beit Jala -- a town whose agricultural land threatens being cut by the wall's final planned route.
- Yearning for 'real change' -
Nabil Abu Nicola, who had travelled from Nazareth, Israel's largest Arab town, to attend the mass, said he was glad the pontiff's mass did not touch on politics.
"A political understanding of this region is very hard. You need to be here for 20 years before you really understand the conflict," he said.
"The minute politics enters the debate, it immediately divides people, labelling this person an Arab, that person a Jew, and so on," he added.
In the square, revered as Jesus's birthplace, a banner hanging on a mosque read: "The detainees in the occupation's (Israeli) prisons are pleading for freedom and dignity."
Father Dominic Tran, a priest from Vietnam, said he had travelled specially to attend the mass.
"Our country went through a long, terrible war, and we know what it's like, so we pray the pope can bring here the spirit of peace on earth," he said.
Francis is to meet Jewish and Muslim leaders in Jerusalem on Monday in efforts to better interfaith relations.
Mariel Villalobos, who travelled with her family from Francis's hometown of Buenos Aires, said she admired the pontiff's emphasis on dialogue.
"Francis is the kind of person who can change things. He called the Jewish people 'our older brothers,' which is amazing. You have to respect other religions," she said.
As the mass ended, Christian singing rang out above the midday call to prayer emanating from a mosque on the square.
"He's unlike other popes in terms of his humanity, and I hope he can bring real change on the ground," said Ibrahim Handal from Bethlehem.
"Through faith, you can move mountains," he said.