Thousands of people joined by marching bands, clergymen in magenta skullcaps and children dressed as Santa Claus celebrated Christmas Eve in the center of Bethlehem Sunday, doing their best to dispel the gloom hovering over Jesus' traditional birthplace.
Most were local residents or Christian Arabs from neighboring Israel, with a sprinkling of foreign tourists.
"It hasn't really set in that I am here in Bethlehem where everything happened so many thousand years ago," said an overwhelmed Matt Lafontaine, a 21-year-old university student from Plymouth, Minnesota. "It's really exciting. It's just starting to set in. It's surreal."
In an annual tradition, Bethlehem's residents enacted Christmas rituals that seem out of place in the Middle East. Palestinian Scouts marched through the streets, some wearing kilts and pompom-topped berets, playing drums and bagpipes. They passed inflatable red-suited Santas, looking forlorn in the West Bank sunshine.
Other scenes of this Bethlehem Christmas, however, could be found nowhere else. To get to town, Latin Patriarch Michel Sabbah, the Roman Catholic Church's highest official in the Holy Land, rode in his motorcade through a huge steel gate in the Israeli separation barrier that separates Jerusalem from Bethlehem.
Israel says it built the barrier to prevent Palestinian suicide bombers from reaching Israeli population centers. Palestinians view the structure, which dips into parts of the West Bank, as a land grab.
The robed clergyman was led into Palestinian-controlled territory by a formal escort of five Israeli policemen mounted on horses. Two Israeli Border Police troops closed the gate behind him.
Sabbah, wearing a flowing gold and burgundy robe, led a procession into St. Catherine's Church, adjacent to the Church of the Nativity, the traditional birthplace of Jesus, for midnight Mass.
Hundreds of worshippers packed the cavernous hall for the service, as clergymen chanted in Latin amid the sound of bells and organ music. Palestinian President Mahmoud Abbas attended the ceremony, escorted by a large security detail to a front row seat.
In his homily, Sabbah offered a blessing to Abbas, appealed to Palestinians to halt their recent "fratricidal struggles" and called for an end to Israeli-Palestinian bloodshed.
"The conflict here has lasted too long," he said. "It is high time that the leaders who have our destinies in their hands in this land — specifically, the Palestinian and Israeli leaders as well as those of the international community — it is time for all of them to take new measures that will bring an end to the long phase of death in our history and lead us into a new phase in the history of this Holy Land."
Sabbah asked all political leaders and adversaries, including Israeli troops and those "who are classified as extremists and terrorists " to "examine their conscience" to end the bloodshed.
Earlier, Abbas expressed hope that his meeting with Israeli Prime Minister Ehud Olmert Saturday would lead to a peace breakthrough. He called the meeting "a good start."
"I congratulate our people, especially our Christian brothers, not only here but all around the world for Christmas and the New Year, God bless us," said Abbas, who is Muslim.
Bethlehem's tourist industry has been hit hard by the last six years of Israeli-Palestinian violence and by the barrier, which Israel began building in 2002, but also by internal Palestinian friction.
This Christmas is the first under a Palestinian Authority governed by the militant Islamic group Hamas. To alleviate Christian fears ahead of the holiday, Hamas promised that it would send $50,000 to decorate Manger Square in the center of town for the holiday. It was not clear if the money ever arrived.
Manger Square and the surrounding buildings were decorated in bright neon lights. Bands performed on a stage, and a large screen beamed images of Palestinian flags and officials. But few foreign tourists appeared to be among the crowd.
"It's a lot more positive than I thought," said one of the foreigners, Frank Baumann, 59, of Squamish, Canada, who came with his wife and three daughters. "It's very festive and everybody is in a good mood. There's certainly no sense of any violence."
Standing outside his empty souvenir shop, George Baboul said this is the "worst Christmas" he has seen in more than 30 years. Baboul's shop, the "Bethlehem Star Store," is in a prime location, at the side of the Church of the Nativity, but he said there is no business.
"No tourists are coming," said Baboul, 72, who opened the shop in 1967. "I don't know what's the reason for that. There are no problems, Bethlehem is safe, but tourists are afraid to come."
By evening, Manger Square was bustling with thousands of people. The small contingent of foreign tourists included a Polish choir group and a handful of pilgrims from South Korea who gathered to sing carols in one corner of the square, interrupted briefly by the loud call to prayer from a nearby mosque.
"It's exciting. I can feel that Jesus was here," said Jae Hwan Kim, 29, of Seoul.
Israel's Tourism Ministry forecast 18,000 tourists would visit Bethlehem this year, up from 16,000 last year, but far below the tens of thousands of people who thronged Manger Square at the height of peacemaking in the 1990s.
Palestinian shopkeeper Mary Jakaman told CBS News correspondent Robert Berger she blames last summer's war in Lebanon and the recent fighting between Palestinian factions.
"It's not good, you know, because of the situation here, the tourists are afraid to come here," Jakaman said.
The only large foreign contingent was made up of around 200 Filipino Christians who work in Israel. They made the short trip to Bethlehem with their spiritual leader, Father Angelo. The small, bubbly priest wearing a brown frock predicted 3,000 Filipinos would arrive in Bethlehem on Christmas Day.
"It's Christmas, it's time for joy, hope and peace, and happiness for all," he said.
With every Christmas, the Holy Land's Christian community shrinks a bit. The native Palestinian Christian population has dipped below 2 percent of the West Bank, Gaza Strip and Arab East Jerusalem, down from at least 15 percent in 1950, by some estimates. Bethlehem is now less than 20 percent Christian.
In Gaza, where 3,000 Christians live among around 1.4 million Muslims, the head of the tiny Roman Catholic community, Father Manuel Musallem, canceled Midnight Mass celebration, citing recent Palestinian infighting between Fatah and Hamas.
"The children told me Santa Claus won't come this year because it's too dangerous," he said.