As the head of the world’s oldest organisation, holding a global market share of 17.5 per cent and with defined values and established decision-making procedures, Joseph Ratzinger should be the envy of any corporate chief executive.

Yet in the space of two weeks Pope Benedict XVI has stumbled into the worst crisis of his four-year-old papacy, dealing in the process the most serious blow to relations between the Roman Catholic Church and the Jewish faith in half a century. Cardinals and bishops are starting to mobilise in revolt. For the moment their disquiet is aimed at a handful of figures surrounding the 81-year-old pontiff who they fear is becoming a timid recluse, buried in his reading and writing, vulnerable to manipulation.

That is the charitable explanation of why last month Pope Benedict lifted the excommunication of four ultra-traditionalist clerics, including British bishop Richard Williamson, who has questioned the extent of the Holocaust and denied the existence of gas chambers in Nazi death camps.

But for progressive theologians this latest attempt by Benedict to heal a decades-old schism confirms his barely disguised sympathies for the doctrinal views of the ultra-conservatives and calls into question the reforms of the historic Second Vatican Council of 1965. The harm done to interfaith dialogue is considerable, says Miroslav Volf, an Episcopalian and professor of theology at Yale University. “This is not the first time that this pope has caused such interfaith damage. He is an equal opportunity interfaith offender,” Prof Volf tells the FT, recalling the angry response of Muslims to the Pope’s 2006 Regensburg speech interpreted as equating Islam with violence.

“Only some of it can be attributed to the Vatican bureaucracy. He is over-zealous in protecting the truth of the faith and unity of the church, the hallmarks of his pontificate … His mistakes and blunders all lean in one direction, appealing to the traditionalists. He is not a Holocaust denier. But why this blunder?”

The reactions from political and religious leaders – including Germany’s Chancellor Angela Merkel – have focused on Mr Williamson’s blatant anti-Semitic (and sexist) views. That the decree was issued just days before International Holocaust Remembrance Day was seen as a public relations disaster. One close follower of the Vatican says Pope Benedict’s media image as “God’s rottweiler” is wrong. “In reality he is timid, shy, bordering on the recluse and could potentially be bullied.”

The pontiff is a popular teacher but appears cut-off, rarely giving access to cardinals and nuncios, unlike his predecessor. His isolation is a subject of considerable debate and mystery, as is how the decision was made to revoke the excommunication of the clerics, followers of the Pius X Fraternity established by Marcel Lefebvre, the schismatic French archbishop who died in 1991.

Sandro Magister, a prominent commentator, blames Cardinal Tarcisio Bertone, the secretary of state who is effectively the Vatican’s prime minister. The cardinal was “distinguished by his absence” in the affair, travelling in Mexico and Spain, indulging in endless rounds of conferences and celebrations. “Benedict XVI was left practically alone, and the curia (civil service) was abandoned to disorder,” Mr Magister writes on his blog.

Others suggest the Italian cardinal – appointed by the Pope in September 2006 – played a more deliberate role, keeping key cardinals out of the decision-making process. They note he helped the then Cardinal Ratzinger in trying to negotiate a solution with Lefebvre in 1988, shortly before Pope John Paul excommunicated the rebel archbishop and the four bishops he had illegally ordained.

In rare displays of public discord, prominent cardinals have expressed dismay at not being consulted. Cardinal Bertone was forced into damage control, issuing a statement that the Pope did not know of Mr Williamson’s views on the Holocaust. He also ordered the renegade bishop to recant his views if he wanted to serve as prelate in the Church.

Mr Williamson’s remarks on the gas chambers were made to a Swedish television station in November but only released on January 21. That was the day the Vatican decided to lift his excommunication although the decree was not made public until three days later. The timing has led to a conspiracy theory that someone in the curia tipped off the broadcaster. Even so, Mr Williamson had aired similar statements before. As Rabbi Marvin Hier, dean of the Simon Wiesenthal Center, says: “All somebody had to do was Google him.”

Others must have known, despite their denials, critics contend. One was Cardinal Dario Castrillon Hoyos who persuaded the Pope to reverse the excommunications. Cardinal Hoyos heads Ecclesia Dei, a group with ties to the ultra-traditionalists, sharing their adhesion to the traditional Latin mass whose return was permitted amid great controversy by the Pope in 2007. There are doubts Benedict will remove Cardinal Bertone, but a revolt by senior clerics could persuade him to resign.

For Benedict – the first German pope since Victor II in 1055 – the furore must be painful. While he has been unapologetic in his rejection of religious pluralism, moral relativisim, economic liberalism, contraception, divorce, women priests and same-sex civil unions, he has consistently spoken out against the Holocaust and persecution of Jews.

Born in 1927 in a Bavarian village not far from Hitler’s own birthplace, his childhood was spent in the shadow of the Third Reich. As a 14-year-old seminary student, he was obliged to join the Hitler Youth. He saw prisoners from the Dachau camp and Hungarian Jews shipped to their death. He was later sent to the Austrian Legion where he was “bullied by fanatical ideologues” and in 1945 he deserted, to be taken prisoner by US soldiers.

Ordained in 1951, he became a professor of dogma and fundamental theology at age 30, starting a long life in academia. By 50 he was archbishop of Munich and soon a cardinal but with little pastoral experience. In 1978 Karol Wojtyla became Pope and in 1981 persuaded Cardinal Ratzinger to head the Congregation of the Doctrine of the Faith, the Vatican’s enforcer of orthodoxy tracing its roots to the Holy Inquisition. He disciplined at least a dozen high profile, liberal Catholics. Some were excommunicated.

Much is now at stake in how Benedict responds to this latest challenge to the Church. In an interview he gave when still a cardinal, he remarked however: “I am like the cellist Rostropovich. I never read the critics.”