Who said "distinction between state and Church...is a great progress..."...and a fundamental condition for [the Church's] very liberty..."

"...and the fulfillment of her universal mission of salvation among all peoples"?

Yes, you guessed it, none other than our own Papa Benny while visiting the Italian Embassy a week ago. The Vatican website has the full speech in Italian only, but Zenit has a report, and here is the "google translator" version of the relevant passage (I really must learn Italian some day...):

This brief visit is propitious for me reiterate how the Church is well aware that "the fundamental structure of Christianity is the distinction between what is Caesar and what belongs to God (cf. Mt 22.21), namely the distinction between state and Church "(Encyclical Deus Caritas Est, 28). This distinction and this autonomy is not only the Church acknowledges and respects, but they welcomed as a great progress and a fundamental condition for his own freedom el'adempimento of its universal mission of salvation among all peoples.

At the same time, however, the Church feels like his job, following the dictates of its social doctrine, argued "from what is consistent with the nature of every human being" (ibid.), to awaken society and moral forces spiritual, helping to open the will to the genuine needs of the property. Therefore, invoking the value they have for life not only private but also and above all public some fundamental ethical principles, in fact, the Church helps to ensure and promote the dignity of the person and the common good of society, and in this sense is realized l 'Desired real cooperation between church and state.

That appears to be more or less where we wound up our discussion on the pros and cons of the "Catholic Confessional State".