Pope Benedict XVI has told a conference comprising clergy, professors and experts from both Islam and Christianity that the two religions need to overcome their misunderstandings.
His appeal in the Vatican's Apostolic palace capped a three-day summit in which he also pressed for greater freedom of worship for non-Muslims in the Islamic world.
The Pope's baptism of a prominent Egyptian-born Muslim last Easter in St Peter's Basilica in Rome upset some in the Muslim world.
He had also previously angered Muslims with comments linking Islam to violence in a speech in 2006, which he later apologised for.
The Pope told participants that he had followed the progress of the talks at the summit closely.
In a speech to the delegates, he said: "Dear friends, let us unite our efforts, animated by good will, in order to overcome all misunderstanding and disagreements.
"Let us resolve to overcome past prejudices and to correct the often distorted images of the other, which even today can create difficulties in our relations.''
Beyond repairing strained relations, the Vatican views the talks between both sides as an opportunity to push for better treatment of Christians in parts of the Muslim world.
In Saudi Arabia, non-Muslims cannot worship in public, Christian symbols like crosses cannot be openly displayed and Muslims who convert face death.
The Vatican has also spoken out about the plight of Christians in Iraq, where churches have been attacked, clergy kidnapped and many faithful forced to flee the country.
The Pope expressed hope that fundamental rights will be "protected for all people everywhere".
"The discrimination and violence which even today religious people experience throughout the world, and the often-violent persecutions to which they are subject, represent unacceptable and unjustifiable acts,'' he said.
Hamza Yusuf Hanson, a US-based scholar who was among the Muslim participants, said the call for tolerance also applies to countries that are essentially "failed states'' for their Muslim citizens, too.
"Muslims are suffering under the yoke of tyrannies where rights which should be afforded to anyone'' are denied, Hanson said.
Abdal Hakim Murad Winter, an Islamic studies lecturer at the divinity school of the University of Cambridge in England said the discussions at the Vatican had made important strides.
Winter said "both sides agreed to respect the sanctity'' of each other's beliefs and to "not tolerate any mockery".
Catholic delegates to the conference included Cardinal Jean-Louis Tauran, who heads the Vatican's council on inter-religious dialogue, Cardinal Theodore McCarrick, a retired Washington DC cardinal archbishop, and Chaldean Archbishop Louis Sako of the northern Iraqi city of Kirkuk.
Another such forum will be held in a Muslim country, yet to be designated, in 2010.