The aim of the PROX reaction is to reduce the CO content of hydrogen feed to proton exchange membrane fuel cells (PEMFC) by selective oxidation of CO in the presence of excess hydrogen. Both Pt and Pd on ceria are active in CO oxidation (without hydrogen) while Pd is poorly active in the presence of hydrogen. In this paper we aimed at finding the reasons of such behavior, using the same techniques for Pd/CeO 2 as for Pt/CeO 2 in Part I: catalytic tests, in-situ DRIFTS, high-pressure XPS, HRTEM and TDS. The reaction mechanism of CO oxidation (without hydrogen) was also examined. It does not occur via the exactly same mechanism on Pt and Pd/CeO 2 catalyst. In the presence of hydrogen (PROX) at low temperature (T=350-380 K), the formation of Pd β-hydride was confirmed by high-pressure in-situ XPS. Its formation greatly suppressed the possibility of CO oxidation, because oxygen both from gas phase and support sites reacted fast with hydride H to form water, and this water desorbed from Pd easily. Nevertheless, CO adsorption was not hampered here. These entities transformed mainly to surface formate and formyl (-CHO) species instead of oxidation as observed by DRIFTS. The participation of a low-temperature water-gas-shift type reaction proposed for the platinum system [Part I] was hindered. Increasing temperature led to decomposition of the hydride phase and a parallel increase in the selectivity towards CO oxidation was observed. However, it remained still lower on Pd/CeO 2 than on Pt/CeO 2 .