Talks stalled when Italy refused to accept the militants
In what appears to be an implicit criticism of Italy's refusal to take in 13 Palestinian militants, Vatican officials have called for renewed efforts on all sides to bring an end to the five-week siege.
But Italy's refusal to accept them led to the process being stalled.
A partial new deal was reportedly reached Wednesday evening, but the fate of the 13 militants is still unclear.
'Final obstacle'
"Just at the moment the negotiations for Bethlehem appeared to reach the finish line, a final obstacle is blocking a happy conclusion, which everyone so eagerly awaited," said Cardinal Roger Etchegaray, who visited the region last week.
Another official, Friar Giovanni Battistelli, said on Vatican radio: "I thought this morning I could announce we entered the church and prayed there."
"All the countries claiming they were trying to help us withdrew when it came to giving real help."
While he agreed it was difficult to take in 13 militants subject to investigation, he said that " not trying to find a solution to this problem seems like passing the buck".
The Church of the Nativity, built on the spot where Christians believe Jesus was born, is one of Christianity's holiest sites.
Vatican officials - together with US and EU representatives, have been involved in brokering a deal to end the standoff.
Kept in the dark
There were initial hopes of a resolution on Tuesday when Israel and Palestinian negotiators agreed to a deal in which the gunmen would go to Egypt and then into exile in Italy.
But Italy said it had been kept in the dark about the plans and could not consider accepting the men.
"I am opposed to it," the Italian daily La Stampa quoted Deputy Prime Minister Gianfranco Fini as saying.
"If we took in the 13 Palestinians we would be exposing our country to a series of grave risks," he said.
"My opinion? They'll never arrive in Italy."