Abbas and Peres greeted each other warmly after arriving in the Vatican and meeting Francis outside his residence, along with the Orthodox Patriarch of Constantinople Bartholomew I who was also present.
All four then took a white minibus to the Vatican Gardens for the ceremony, after which Abbas, Peres and Francis are expected to plant an olive tree.
Peres said it was "an unusual call for peace", which included Christian, Jewish and Muslim prayers.
"With this prayer we are sending a message to all believers of the three major religions and the others: the dream of peace must not die," he said.
More From This Section
Peres, who is 90 years old and will be stepping down next month, was quoted by his office as saying that the spiritual call for peace was "very important".
"I hope the event will contribute to promoting peace between the two sides and throughout the world," he said, adding that the conflict was "both political and religious" and "religious leaders resonate".
Israel has since announced plans for building 3,200 new settler homes and has said it will boycott what it denounces as a "government of terror".
Peres today said the Palestinian unity government was "a contradiction that can't last very long", but Abbas defended it saying: "One should never reject a chance for dialogue, internally as well."
The Vatican is being realistic about the ceremony, which is unlikely to have any immediate effect.
"Nobody is fooling themselves that peace will break out in the Holy Land," said Father Pierbattista Pizzaballa, the head of the Franciscan Order in the Middle East who is organising the historic event.
Francis made the offer to Abbas and Peres on his first visit as pontiff to the Middle East last month and ahead of the meeting today he reiterated his call for a Catholic Church able to "shake things up".