Connecting UART of ATmega16 to XBee
If there is a MAX232 on the XBee development kit, you need to add a level converter to the micro UART as well. If there is a way to bypass the MAX232 and connect to the XBee at the micro voltage levels, you could connect the micro Tx to the XBee Rx (and vice-versa) directly.

If you don't want to wire up the MAX232 (and externals) yourself, you can use a converter board, such as this one from Sparkfun:

https://www.sparkfun.com/products/449