China has welcomed the Vatican's new move to resolve their differences, calling it "a step forward".
The Pope is to write to China's 10m Catholics
The Vatican had called for an end to past misunderstandings after a two-day meeting in Rome to review Church strategy towards China.
Diplomatic ties have been broken since the 1950s and the sides have clashed on the ordination of bishops and Taiwan.
China's state-sanctioned church has four million followers with millions more in groups loyal to the Vatican.
China's state-run Chinese Patriotic Catholic Association welcomed the meeting and especially Pope Benedict XVI's decision to write a letter to China's 10m Catholics.
Association vice-chairman Liu Bainian said: "This is beneficial for China-Vatican relations. It is a step forward but we still have to see the concrete actions."
Liu Bainian said "concrete action" was still needed
The BBC's Daniel Griffiths in Beijing says despite China's reaction much hard work still lies ahead.
The two main causes of disagreement between the sides are the Vatican's recognition of Taiwan and China's ordination of bishops without the Holy See's consent.
Three such bishops were appointed last year.
While the Vatican has indicated it is willing to downgrade relations with Taiwan, the Episcopal appointments remain a sticking point.
The Holy See has also been a critic of China's human rights record.
The statement issued after the meeting, which the Pope himself did not attend, paid tribute to Chinese Catholics who "without yielding to compromise... kept their loyalty to the Seat of St Peter, at times even at the price of great suffering".
But Mr Liu said the Vatican statement acknowledged the growth of the Chinese Church and that this was proof the Holy See recognised China enjoyed freedom of religious belief.
The BBC's David Willey in Rome says both sides seem to want to improve ties, keeping open the possibility of a papal visit around the time of the 2008 Olympics in Beijing.