Pope Benedict XVI has led Midnight Mass before 10,000 people at St Peter's Basilica in Rome.
Millions more tuned in to watch the service on the television.
In a world of technological gadgets, the 85-year-old Pope urged people to find room for God in their lives.
"Do we have time and space for him? Do we not actually turn away God himself? We begin to do so when we have no time for him," he said.
"The faster we can move, the more efficient our time-saving appliances become, the less time we have. And God? The question of God never seems urgent. Our time is already completely full."
The Pope lamented the way in which God "has to be explained away" by some people.
"If thinking is to be taken seriously, it must be structured in such a way that the 'God hypothesis' becomes superfluous," he said.
"There is no room for him. Not even in our feelings and desires is there any room for him.
"We want ourselves. We want what we can seize hold of, we want happiness that is within our reach, we want our plans and purposes to succeed.
"We are so 'full' of ourselves that there is no room left for God."
He encouraged people to "become vigilant for his presence".
"Let us ask that we may make room for him within ourselves, that we may recognise him also in those through whom he speaks to us: children, the suffering, the abandoned, those who are excluded and the poor of this world," he said.
The Pope expressed concern for the Holy Land as he called for peace between Israel and Palestine.
He also spoke of his desire to see peace in Iraq, Lebanon and conflict-torn Syria, as he appealed to Christians and Muslims to "build up their countries side-by-side in God's peace".