"If people look only to their own interests, our world will certainly fall apart," he told tens of thousands of worshippers gathered in St Peter's Square.
The BBC's David Wiley in Rome says this Christmas the Pope's thoughts are centred particularly upon conflicts in the Middle East and Africa.
The pontiff's address coincided with an escalation of violence between Israel and Palestinian militants in Gaza, after Hamas leaders there declared an end to a ceasefire between the two sides.
Speaking in Italian from a balcony at St Peter's Basilica, the Pope observed that the "horizon seems once again bleak" for Israel and the Palestinians.
Pope Benedict plans to visit Cameroon and Angola in March, and then Israel, the Palestinian territories and Jordan next May in order to see for himself the Middle East situation and encourage peaceful solutions to conflict there, our correspondent says.
"May the divine light of Bethlehem radiate throughout the Holy Land," the Pope said.
His remarks echoed those of his earlier Midnight Mass, in which he called for an end to "hatred and violence" in the Middle East.
Turning to Africa, the pontiff said Zimbabweans had been "trapped for all too long in a political and social crisis which, sadly, keeps worsening".
Zimbabwe is battling economic collapse and a cholera epidemic, which has killed more than 1,100 people.
The Pope also decried the "interminable sufferings" of the people of the Democratic Republic of Congo (DRC), Sudan and Somalia.
These, he said, were the "tragic consequences of the lack of stability and peace" there.
At the end of his Urbi et Orbi (Latin for "To the City and the World") speech, the 81-year-old head of the Roman Catholic Church issued Christmas greetings in 64 languages.
Most of the world's 2.1 billion Christians mark Christmas this week.
Others, chiefly from among the 200 million Orthodox Christians who use the Julian Calendar for their feast days, celebrate the birth of Jesus Christ on 7 January.
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