At the service in St Peter's Basilica, the 77-year-old leader of the world's Catholics said local shepherds were the first to witness the holy birth "because they were among the last, the outcast".
The Argentine pope, who was elected this year after his predecessor Benedict XVI's momentous resignation, also called on Catholic believers to open their hearts and struggle against the "spirit of darkness".
"If our heart is closed, if we are dominated by pride, deceit, self-seeking, then darkness falls within us," said Francis, who has shaken up the papacy with his humble style and has promised to reform the Vatican.
Francis has repeatedly warned about rising rates of anti-Christian violence, and he spoke at a time when Christians from ancient communities in Syria are fleeing its civil war. Others are meanwhile struggling to rebuild after the devastating typhoon that struck the Philippines this year.
In Europe, Christmas Eve mass in a church nestled in the French Alps came to an abrupt end Tuesday when part of the ceiling fell down on the priest's head. The discovery of an unexploded World War II bomb in the Belgian city of Ghent also spoiled celebrations.
The Vatican unveiled a traditional Nativity scene in St Peter's Square by Naples artisan Antonio Cantone, who named it after Francis and the mediaeval Italian saint who has inspired him, St Francis of Assisi.
Cantone said the scene was intended to highlight the role of ordinary people in witnessing Jesus's birth -- a homage to the "simplicity" shown by Pope Francis.
In the West Bank town of Bethlehem, Jerusalem's Latin patriarch Fuad Twal celebrated a midnight mass attended by Palestinian president Mahmud Abbas.
Thousands of pilgrims and tourists made their way past Israel's controversial separation wall to reach the Palestinian hilltop town, where snow remains on the ground from a rare winter blizzard this month.
A giant Santa was set up in Manger Square, outside the centuries-old Church of the Nativity, where a candle-lit grotto marks the spot where Christians believe the Virgin Mary gave birth to Jesus.
In a homily delivered at the Christmas Eve mass, Twal called for a "just and equitable solution" to the decades-old Israeli-Palestinian conflict.
For Christians "the answer lies neither in emigration nor in closing in on ourselves. It consists in staying here," said the 73-year-old patriarch.
"From this holy place, we remember all the adversities in our world: from civil wars in Africa to the typhoon in the Philippines, the difficult situation in Egypt and in Iraq, the tragedy playing out in Syria," he said.
An estimated 126,000 people have been killed in Syria, where a brutal crackdown on pro-democracy protests ignited a full-blown civil war with no end in sight.
Among the millions displaced are thousands of residents of the historic Christian village of Maalula, many of whom still speak the ancient Aramaic of Jesus.
Juliana, a 22-year-old Maalula refugee in Damascus, recalled past Christmas holidays at home as "joyful".
"We would decorate the Christmas tree, and friends and relatives would get together for midnight mass.
"This year, we will attend mass of course but there won't be any Christmas tree or manger. We are refugees now," she said.
In the Philippines it was not war but a devastating act of nature, Super Typhoon Haiyan, which flattened entire towns and left nearly 8,000 people dead or missing.
Filipinos who survived the disaster defiantly celebrated Christmas in their ruined communities, roasting hogs and filling churches to overflowing.
"Nothing can stop us from welcoming Christmas even though we have lost our home," 63-year-old Ellen Miano said in Tacloban, which bore the brunt of the storm.
On a lighter note, the US government said it had officially cleared Santa Claus for entry after waiving stringent livestock checks on his reindeer.
Meanwhile in space, astronauts from US space agency NASA completed a rare Christmas Eve spacewalk to make repairs on the International Space Station.
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