Benedict's reference to the unborn in his homily was a clear reference to the Roman Catholic Church's opposition to abortion.
"God is so powerful that he can make himself vulnerable and come to us as a defenseless child, so that we can love him," Benedict said, referring to the birth of Jesus. He said that "something of the splendor" of Christmas "shines on every child, even on those still unborn." Reading his homily slowly, Benedict stressed the word "every" in his reference to children.
Benedict urged the world's Catholics to be beacons of peace, CBS News' Sabina Castelfranco reports. He prayed for peace where there is conflict, for love where there is hatred and for light where darkness prevails.
He also had special words for the Holy Land, Castelfranco reports.
"On this night, when we look toward, let us pray in a special way for the birthplace of our Redeemer and for the men and women who live and suffer there," the pope said. "We wish to pray for peace in the Holy Land."
At the start of the service, a dozen children brought flowers up to the center altar, placing them near a statue depicting baby Jesus as a choir of adults and youths sang hymns.
Benedict wore gold-colored robes and blessed the crowd when he arrived, striding up the central aisle of the basilica, which was packed with pilgrims, tourists and Romans.
For the overflow, two giant screens were set up in St. Peter's Square, which was made festive with a 100-foot high Austrian fir, shimmering with decorations. In his homily, Benedict said a flame lit in Bethlehem accompanied the tree.
It was Benedict's first Midnight Mass since being elected April 19, and the first major public engagement of the Christmas period at the Vatican for the 78-year-old pontiff.
On Christmas Day at noon, Benedict was scheduled to deliver the "Urbi et Orbi" message (Latin for "to the city and to the world") to pilgrims and tourists in St. Peter's Square and offer holiday greetings.
His predecessor, Pope John Paul II, used to delight the crowds by delivering holiday wishes in dozens of languages. John Paul also would use the "Urbi et Orbi" message to review conditions around the world, often lamenting conflicts, poverty and the excesses of consumerism.
John Paul's longtime aide, Stanislaw Dziwisz, recalled Saturday the late pope's final Christmas last year, saying "we saw a very tired Holy Father and we were aware that maybe it would be the last."
Despite his ailments, "the Holy Father showed his guests warmth, and with the same love he shared the wafer and he even sang carols," Dziwisz told a television station in Krakow, Poland.
John Paul died on April 2.
On New Year's Eve, Benedict was to preside over an evening prayer service and, the following day, was to celebrate Mass in St. Peter's Basilica to mark the Catholic Church's World Peace Day.
In his homily at midnight Mass, Benedict mentioned no other area of conflict on the globe other than the Holy Land.
Benedict ended his homily with this appeal to God: "Where there is conflict, give birth to peace. Where there is hatred, make love spring up! Where darkness prevails, let light shine."
Earlier in the evening, Benedict appeared at his studio window briefly to light a candle and bless the crowds below who had gathered to watch the unveiling of the Vatican's Nativity scene.