What I fail to understand is why the Vatican chooses to stand for the "right" of an obvious terrorist mastermind with lots of blood on his hands, who is not even Christian, to go to Bethlehem for an obvious publicity stunt. I would think that the Vatican would want to be perceived as being above or apart from the politics of the area, similar to how the US Supreme Court seeks to remain above internal politics here. It is a matter of credibility - you lose it as a "neutral party" if you become part of the fight on either side. I thought that the Vatican was smarter than that.
One of the things you have to remember is that the Vatican has been involved in ongoing negotiations with Israel over several decades on a diplomatic level. The Vatican had received a lot of criticism for its refusal to recognize Israel as a state, but the truth was that Israel simply did not meet all of the conditions that the Vatican has in place before it recognizes a nation. One of these conditions is that the nation in question must have clearly-defined borders, and another condition is that the nation's capital cannot be situated in disputed territory. The first issue is the reason why the Vatican has always supported the notion of a Palestinian state, and the second issue is the reason why the Vatican will not accept Jerusalem as Israel's capital.