How does the Catholic Church understand the priesthood of all believers?

In the process of answering a question on the Sacraments , I discovered that Catholic Church accepts the doctrine of the "priesthood of all believers" . This rather surprised me since the Church has separate, ordained priests who, among other things, perform the Sacraments. From my point of view (as an Evangelical Protestant), passages such as: > But you are a chosen race, a kingdom of priests, a holy nation, a people to be a personal possession to sing the praises of God who called you out of the darkness into his wonderful light.—1st Peter 2:9 (NJB ) ...suggest that everyone in the church has a duty to stand before God. Practically the entire book of Hebrews makes the case that the Old Testament model of priests as holy (literally, "set apart") men has been replaced by a new model in which we all function as priests. At a very simple level, it seems impossible to hold both of the following statements as true: 1. The entire Church is set apart by God to be priests. 2. Individuals are set apart from the rest of the Church by God to be priests. Am I equivocating on the word "priest"? (Or to put it another way, are there two different classes of priests in the Catholic Church?)