By Dalia Nammari

The Associated Press

BETHLEHEM, West Bank -- Thousands of Christians from the world over packed Manger Square in Bethlehem Monday to celebrate the birth of Jesus in the ancient West Bank town where he was born.

For their Palestinian hosts, this holiday season was an especially joyous one, with the hardships of the Israeli occupation that so often clouded previous Christmas Eve celebrations eased by the United Nations' recent recognition of an independent state of Palestine.

Festivities led up to the Midnight Mass at St. Catherine's Church, next to the fourth-century Church of the Nativity, built over the grotto where tradition says Jesus was born.

"From this holy place, I invite politicians and men of good will to work with determination for peace and reconciliation that encompasses Palestine and Israel in the midst of all the suffering in the Middle East," said the top Roman Catholic cleric in the Holy Land, Latin Patriarch Fouad Twal in his annual address. "Please continue to fight for a just cause to achieve peace and security for the people of the Holy Land."

In his pre-Christmas homily, Twal said the road to actual freedom was still long, but this year's festivities were doubly joyful, celebrating "the birth of Christ our Lord and the birth of the state of Palestine."

"The path [to statehood] remains long, and will require a united effort," added Twal, a Palestinian citizen of Jordan, at the patriarchate's headquarters in Jerusalem's Old City.

Then he set off in a procession for the West Bank city of Bethlehem, Jesus' traditional birthplace. There, he was reminded that life on the ground for Palestinians has not changed since the U.N. recognized their state last month in the Israeli-occupied West Bank and east Jerusalem and the Hamas-ruled Gaza Strip.

Twal had to enter the biblical town through a massive metal gate in the barrier of towering concrete slabs Israel built between Jerusalem and Bethlehem during a wave of Palestinian suicide bombings in the last decade. The Israeli military, which controls the crossing, said it significantly eased restrictions for the Christmas season.

Israel, backed by the United States, opposed the statehood bid, saying it was a Palestinian ploy to bypass negotiations. Talks stalled four years ago.

Hundreds of people greeted Twal in Manger Square, outside the Church of Nativity. The mood was festive under sunny skies, with children dressed in holiday finery or in Santa costumes, and marching bands playing in the streets.

After nightfall, a packed Manger Square, resplendent with strings of lights, decorations and a 55-foot Christmas tree, took on a festival atmosphere, as pilgrims mixed with locals.

A choral group from the Baptist Church in Jerusalem performed carols on one side of the square, handing out sheets of lyrics and encouraging others to sing along with songs such as "We Wish You A Merry Christmas."

Vendors sold balloons, cotton candy and corn on the cob, bands played Christmas songs and tourists packed cafes that are quiet most of the rest of the year. Pilgrims from around the world wandered the streets, singing Christmas carols and visiting churches.

Devout Christians said it was a moving experience to be so close to the origins of their faith.

"It's a special feeling to be here, it's an encounter with my soul and God," said Joanne Kurczewska, a professor at Warsaw University in Poland, who was visiting Bethlehem for a second time at Christmas.

Pastor Al Mucciarone, 61, from Short Hills, New Jersey, agreed.

"We come here to celebrate Jesus. This is a very important town. Great things come from small events. The son of God was born in this small village. We hope all will follow Jesus," he said.

Audra Kasparian, 45, from Salt Lake City, Utah, called her visit to Bethlehem "a life event to cherish forever. It is one of those events that is great to be a part of."

Palestinian President Mahmoud Abbas also visited Bethlehem and said "peace will prevail from the birthplace of Jesus, and we wish everyone peace and happiness," according to the official Palestinian Wafa news agency.

Israeli Prime Minister Benjamin Netanyahu issued a special Christmas greeting too, wishing Christians "a year of security, prosperity and peace."

Christmas is the high point of the year in Bethlehem, which, like the rest of the West Bank, is struggling to recover from the economic hard times that followed the violent Palestinian uprising against Israel that broke out in late 2000.

Tourists and pilgrims who were scared away by the fighting have been returning in larger numbers. Last year's Christmas Eve celebration produced the highest turnout in more than a decade, with some 100,000 visitors, including foreign workers and Arab Christians from Israel.

The Israeli Tourism Ministry predicted a 25 percent drop from that level this year, following last month's clash between Israel and Palestinian militants in Gaza, which put a chill on tourist arrivals. Foreign tourists heading to Bethlehem must pass through Israel or the Israel-controlled border crossing into the West Bank from Jordan.

Outside the town's quaint Manger Square, Bethlehem is a drab, sprawling town with a dwindling Christian base - a far cry from the pastoral village of biblical times.

About 22,000 Palestinians live in Bethlehem, according to the town council, but combined with several surrounding communities has a population of some 50,000 people.

Overall, there are only about 50,000 Christians in the West Bank, less than 3 percent of the population, the result of a lower birthrate and increased emigration. Bethlehem's Christians make up only a third of its residents, down from 75 percent a few decades ago.

Elias Joha, a 44-year-old Christian who runs a souvenir store, said even with the U.N. recognition, this year's celebrations were sad for him. He said most of his family has left, and that if he had the opportunity, he would do the same.

"These celebrations are not even for Christians because there are no Christians. It is going from bad to worse from all sides ... we are not enjoying Christmas as before."

Located on the southeastern outskirts of Jerusalem, Bethlehem has the highest unemployment in the West Bank, but the tourist boom of Christmas offered a brief reprieve. Officials say all 34 hotels in the town are fully booked for the Christmas season, including 13 new ones built this year.

Israel turned Bethlehem over to Palestinian civil control a few days before Christmas in 1995, and since then, residents have been celebrating the holiday regardless of their religion. Many Muslims took part in celebration Monday as well.

Christians across the region marked the holiday.

In Iraq, Christians gathered for services with tight security, including at Baghdad's Our Lady of Salvation church, the scene of a brutal October 2010 attack that killed more than 50 worshippers and wounded scores more.

Earlier this month, Cardinal Leonardo Sandri, who is responsible for the Vatican's outreach to the Middle East's Catholic communities, traveled to Iraq and presided over a Mass to rededicate the church following renovations. In his homily, he remembered those who were killed and expressed hope that "the tears shed in this sacred place become the good seed of communion and witness and bear much fruit," according to an account by Vatican Radio.

The exact number of Christians remaining in Iraq is not known, but it has fallen sharply from as many as 1.4 million before the U.S.-led invasion nearly a decade ago to about 400,000 to 600,000, according community leaders cited by the U.S. State Department.

In the Vatican, Pope Benedict XVI lit a Christmas peace candle set on the windowsill of his private studio.

Pilgrims, tourists and Romans gathered below in St. Peter's Square for the inauguration Monday evening of a Nativity scene and cheered when the flame was lit.

Later, the pope led Christmas Eve Mass in St. Peter's Basilica, prayed that Israelis and Palestinians live in peace and freedom, and asked the faithful to pray for strife-torn Syria as well as Lebanon and Iraq.

The ceremony began at 10 p.m. local time Monday with the blare of trumpets, meant to symbolize Christian joy over the news of Christ's birth in Bethlehem. The basilica's main bell tolled outside, and the sweet voices of the Vatican's boys' choir wafted across the packed venue.

Christmas Eve Mass at the Vatican traditionally began at midnight, but the start time was moved up years ago so as to give the 85-year-old pontiff more time to rest before his Christmas Day speech. That address is to be delivered at midday Tuesday from the basilica's central balcony.