Benedict arrived by helicopter from Lisbon where he warned Portugal's cultural elite of the "dramatic" consequences of increasing secularism.
The pontiff's message to clergy shortly after his arrival in Fatima was to "take a firm stand" for their vocation at a time when the Catholic Church is being rocked by a succession of scandals over paedophile priests.
He told hundreds of priests, nuns and seminarians at the sanctuary's main church that dedication to their calling required "courage and trust", but that they should stand together in times of crisis to support each other.
Huge crowds cheered the pope on his arrival at the shrine, one of Christianity's most visited, and up to a half million pilgrims are expected to attend a giant outdoor mass in Fatima on Thursday. The Church has billed it the "heart" of his visit.
Benedict, the third pope to visit Fatima, toured the shrine's vast esplanade, which turned into a sea of colour as the huge crowd waved yellow and white Vatican flags and hats, as well as the red and green of Portugal.
Chants of "Viva o Papa" rang round the crowd as the popemobile reached the Chapel of Apparitions, built on the site where three shepherd children reported seeing visions of the Virgin Mary in 1917.
Many, like retired teacher Antonio, wept after glimpsing the pope.
"This is moving for me because I had never seen the pope before with my own eyes. And today I did," he said as he wiped away tears.
Benedict is the third pope to visit Fatima, following Paul VI in 1967 and John Paul II, who visited three times.
On the first occasion he placed a bullet extracted after a failed assassination attempt in the silver and gold crown of the statue of the Virgin at which Benedict prayed on his arrival.
Benedict was to lead a candle-lit vigil on the esplanade late Wednesday.
Already sounding hoarse during his speech to clergy earlier in the evening, the pope urged them to be wary of "those situations where there is a certain weakening of priestly ideals or dedication to activities not fully consonant with what is proper for a minister of Jesus Christ."
"Then is the time to take a firm stand, with an attitude of warm fraternal love, as brother assisting his brother to remain on his feet."
The problems afflicting the Church worldwide and an increasingly secular society in nominally Catholic Portugal have failed to blunt public enthusiasm for the visit.
Police said 280,000 people had participated in Benedict's first open air mass in Lisbon on Tuesday.
Benedict's four-day trip was overshadowed by charges that the Vatican for years covered up the sexual abuse of children by priests in several countries.
In what may yet been seen as a watershed in his battle against the Church's biggest crisis in decades, the pope said en route to Portugal that the problems it faced came not from its enemies, but from sin within the institution itself.
The comments, effectively a reversal of earlier Vatican attempts to blame media sensationalism for the Church's problems, won praise from Vatican watchers.
Benedict has not directly referred to the abuse controversy, which has left the Portuguese Church untainted, since his visit began.
In his speech in Lisbon to 1,500 artists, scientists and intellectuals, Benedict said Portuguese society was going through a "turbulent period."
"For a society made up mainly of Catholics, and whose culture has been profoundly marked by Christianity, the search for truth apart from Christ proves dramatic," he said.
He also held a half-hour meeting with Portugal's Prime Minister Jose Socrates, a staunch defender of gay marriage legislation recently passed by the country's parliament and set to be signed into law next week.
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