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The faithful are gathering around Manger Square, which marks the site where Christians believe Jesus was born. Palestinian President Mahmoud Abbas is expected to attend a midnight mass Wednesday night. Earlier Wednesday, a band of Palestinian boy scouts kicked off the holiday celebrations with a performance of Christmas music.
Security is expected to be tight through the holiday season. Pilgrims must also pass through an Israeli army checkpoint in order to get into Bethlehem, which is separated from Jerusalem by an eight-meter concrete wall - part of the barrier Israel has constructed around the West Bank.
Israel says the barrier is necessary to protect its citizens from Palestinian attacks, but opponents of the wall say it is in violation of international human rights law.
Some information for this report was provided by AFP and Reuters. By VOA News.
Reuters adds.
Tourism collapsed in Gaza when a Palestinian uprising against Israeli occupation began in 2000. But this Christmas, the Palestinian tourism minister says, hotel occupancy is peaking.
"The increase in security and easier movement means we have our largest numbers, and we are making great efforts to restore tourist activity," she said.
"The numbers themselves are not as important as the length of stay," she added. The direct contribution of tourism to the Palestinian economy is reckoned at about $704 million a year.
Palestinians say the Israeli barrier is a major obstacle to peace that cripples trade and turns off foreign tourists.
Many visitors see the wall between Jerusalem and Bethlehem as an ugly scar defiling a Christian holy site.