So if worgen can be priests, why cant they be paladins? and they were once human and they both control holy magic
There's already several races that can be a priests but not paladins, like the Night Elves, and the Forsaken. This is because, from a lore perspective, priests and paladins are actually quite unique, even though in the game they both use holy magic.
Priests get their power from their faith, which is kind of unique for each race. For humans it is "the Light," for Night Elves it is Elune, for Trolls it is the spirituality of the world, and so on. Check http://www.wowwiki.com/Priest for more lore.
Paladins get their power exclusively from the Light. So, humans and Draenei can be paladins, since they follow the Light, but Night Elves can't, since they just follow Elune. Paladins come from orders like the Knights of the Silver Hand, the Order of Blood Knights, and the Hand of Argus, that follow the Light. There's more info at http://www.wowwiki.com/Paladin too.
So apparently, Worgen have their own (possibly twisted) faith, which allows them to be priests. But they do not follow the Light (even if they once did), so they can't be paladins.
Oh and also, Blizzard Says.
The origins of the Worgen race are found in a group of Night Elves known as the Druids of the Scythe who had acquired the worgen form in their shape shifting. Unfortunately, they fell to the blood frenzy the form brought on and were confined beneath a tree (Much like the one you will see in Gilneas come Cataclysm).
Here's the point - As the Druids of the Scythe were originally Night Elves, and so recieved some amount of power from Elune, it makes sense that these Worgen would also be able to wield Elune's power as priests/priestesses even though they are incapable of wielding The Light.