Israeli troops cordoned off the square around Bethlehem's Church of the Nativity, preventing worshippers from attending services Sunday.
Bethlehem's residents have been under curfew since Friday, when Israeli troops entered the town following a homicide bombing in Jerusalem that killed 11 people on Thursday. The Palestinian bomber came from Bethlehem.
As the church bells pealed Sunday, the soldiers allowed about 15 monks to enter the compound of the church, built on the site where Jesus was believed to have been born.
The army has been conducting house-to-house searches for militants, and more than 30 Palestinians, three believed to be connected to homicide bombing operations, have been arrested, army officials said.
In other military actions, Israeli forces arrested Lt. Col. Khaled Maraka an officer in Palestinian leader Yasser Arafat's Force 17 unit, and three others, in Beit Omar, near the West Bank town of Hebron, the army said.
And in the West Bank village of Tubas, Israeli soldiers surrounded and searched four mosques while looking for a suspected militant, Palestinian sources said.
Troops called over loudspeakers for the surrender of Mohammed Alkilani, a muezzin, who calls Muslims to prayer, said Jamal Attiya, the prayer leader at one of the mosques. At one stage, troops made Alkilani's father call for his son to surrender, Attiya said.
When Alkilani failed to emerge, troops blew down two large mosque doors and entered. They searched the mosque and threw tear gas canisters into a water well inside the mosque, but did not find Alkilani, Attiya said.
Army officials confirmed that troops were operating in the town, but refused to elaborate.
Inside Bethlehem's Church of the Nativity, a small group of monks and nuns gathered to sing hymns and pray, while the Israeli troops patrolled outside.
In March, Israeli soldiers besieged the church for 39 days after Palestinian militants took refuge inside. During the latest incursion, troops were quick to seal off the church compound and the adjoining Manger Square to prevent a similar occurrence.
"We are praying for peace in Bethlehem, and call on God to decrease the suffering of the people, said Rev. Ibrahim Faltas, who is in charge of the church. "The church is sad without worshippers."
Also Sunday, Israeli officials said that during a raid on Palestinian security headquarters in Gaza last week, troops uncovered documents outlining plans to set up a factory that would produce nitric acid, a key ingredient in explosives.
Raanan Gissin, an adviser to Israeli Prime Minister Ariel Sharon, accused Rashid Abu Shabak, head of the Palestinian Preventive Security force of organizing the effort to make high-quality explosives.
The documents captured by Israel were not made available to the media. Abu Shabak denied the Israeli claims. "These are false, baseless allegations," he said.