"Our ecumenical path together will continue to encounter difficulties and will demand patient dialogue," the 78-year-old Pope told members of the Lutheran World Federation who visited the Vatican.
But the Pope, who has said he wanted to make the drive for Christian unity a key part of his papacy, said he was encouraged by what he called a "solid tradition" of serious study and exchange between the two Churches in the past several decades.
Lutherans began their break from Rome in 1517 when Martin Luther nailed his "95 theses" of theological dissent to the door of a church in Wittenberg, sparking the Reformation that soon spread in Germany and northern Europe.
"As we prepare to mark the five-hundredth anniversary of the events of 1517, we should intensify our efforts to understand more deeply what we have in common and what divides us, as well as the gifts we have to offer each other," he said.
The Roman Catholic Church, which accounts for just over half of the world's 2 billion Christians, has been working since the Second Vatican Council (1962-1965) with its "separated brothers" to try to overcome the splits in Christianity.
While differences are probably too great to draw everyone in under one roof, Benedict advocates a "unity in diversity" that could bring Christian churches ever closer together.
Benedict played a key role in a breakthrough in 1999 when the Vatican and the World Lutheran Federation signed an accord resolving some of the disputes that led to the Reformation.
But the Pope, a German who knows the Lutheran Church perhaps better than any of his predecessors, said remaining differences between the two Churches had to be discussed.
The Vatican does not allow Protestants to receive the Catholic Eucharist, for example.
Discussing this is a theological minefield because it involves deeper issues, such as the nature of a church and its priesthood, that divide the strictly hierarchical Catholic Church and its celibate male-only clergy from more decentralised Protestants with married - and sometimes female - priests.
Soon after the Pope visited Cologne in Germany last August, the Protestants pulled out of a joint Bible translation project with the Catholics, saying Rome was setting too many conditions for how to proceed.