"I invite the two sides not to forget the importance of the spiritual dimension of Jerusalem with its holy sites and the presence of all three monotheistic religions," told thousands of pilgrims outside his summer residence south of Rome.
The status of Jerusalem is one of the major sticking points in peace talks between the Israelis and Palestinians, now in their 13th day at the Camp David presidential retreat in Maryland.
"The Holy See still thinks that only a special status with international safeguards can effectively preserve the most sacred parts of the Holy City and guarantee religious freedom for all the faithful in the region and the world, who see Jerusalem as a crossroads of peace and unity," the pontiff said following morning prayers.
"I want to personally encourage by prayer the [Camp David] negotiations, which aren't easy, and I invite the leaders to pursue their efforts, hoping that they will continue to be inspired by a sincere desire to respect rights and justice for all, and the establishment of a just and lasting peace," the pope said.
For several years, the Vatican has demanded that the future status of Jerusalem include international guarantees preserving the sacred nature of the city.
During a 1998 visit to Jerusalem, the Vatican's secretary for foreign relations, Monsignor Jean-Louis Tauran, said Jerusalem was "a unique case which demands a unique commitment, not only from the Holy See but from the entire international community, like in 1947," when the United Nations adopted a resolution suggesting the city be placed under international control.
The Vatican clarified its position in an accord signed between Palestinians and the Holy See in February, which included a statement saying that "decisions and unilateral action modifying the specific character and status of Jerusalem were morally and legally unacceptable."
"With regards to Jerusalem, the accord does not deal with territorial or sovereignty questions which are of concern to the Israelis or Palestinians," spokesman Joaquin Navarro-Valls said at the time.
He said the statement "referred to the religious and universal cultural dimension" of the city.
Israel captured and annexed east Jerusalem in 1967 and claims it as part of its eternal undivided capital, a position not recognised by the international community.
The Palestinians want the sector, which includes sites holy to Christians, Jews, and Muslims, as the capital of an independent state they have vowed to declare by September 13.