Marching bands, children dressed as Santa Claus and clergymen in magenta skullcaps gathered in the center of Bethlehem on Sunday to celebrate Christmas Eve, doing their best to dispel the gloom hovering over Jesus' traditional birthplace.

In an annual custom, townspeople enacted Christmas rituals that seem out of place in the Middle East. Palestinian scouts marched through the streets, some wearing kilts and berets, playing drums and bagpipes. They passed inflatable Santas looking forlorn in the sunshine.

Other acts, however, could take place nowhere else. To get to the West Bank town, 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 barrier that separates Jerusalem from Bethlehem.

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Israel says it built the barrier to prevent Palestinian 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 on horseback. Two officers of the Israeli Border Police closed the gate behind him.

"God wants us all to be peacemakers. He wants every believer who has faith in God — Jewish, Muslim or Christian — to work to make peace," Sabbah said in his annual Christmas address at his Jerusalem office before going to Bethlehem.

"Our leaders so far have only made war, they haven't made peace," he added.

Bethlehem's tourist industry has been hit hard by six years of Israeli-Palestinian violence, construction of the barrier and internal Palestinian fighting.

This Christmas was the first under a Palestinian Authority controlled by the militant Islamic group Hamas.

To alleviate Christian fears, Hamas promised to provide $50,000 for decorating Manger Square in the town's center for the holiday, but it wasn't clear if the money arrived.

There were fewer Christmas decorations than in the past, and for the first time no Christmas carols were piped over the loudspeaker system.

Standing outside his empty souvenir shop, George Baboul said it was the "worst Christmas" he had seen in more than 30 years. His 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."

Mayor Victor Batarseh said the city would celebrate Christmas despite the hardship.

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"With all this oppression, this economic stress, physical stress, psychological stress, we are defying all these obstacles and we are celebrating Christmas so that we'll put joy into the faces of our children, joy to the citizens of Bethlehem," Batarseh said.

Each year, Israel eases travel restrictions to Bethlehem. Last week, Israel's Tourism Ministry said it would provide free transportation between Jerusalem and Bethlehem on Christmas Eve and Christmas Day.

Israel's Tourism Ministry forecast 18,000 tourists would visit Bethlehem during the holidays, up from 16,000 last year, but far below the tens of thousands who thronged Manger Square at the height of peacemaking in the 1990s.

But most of those in Manger Square on Sunday were locals. The sprinkling of foreign tourists included a Polish choir and a handful of South Korean pilgrims who gathered to sing carols in a corner of the square, interrupted briefly by the call to prayer from a nearby mosque.

"It's exciting. I can feel that Jesus was here," said Jae Hwan Kim, 29, of Seoul.

The only large foreign contingent was made up of 200 or so Filipino Christians who work in Israel.

"We will have three Masses tomorrow," said Father Angelo, the group's small, bubbly spiritual leader who was herding them through the narrow entrance to the Church of the Nativity. He predicted 3,000 Filipinos would be in Bethlehem on Christmas Day.

"It's Christmas, it's time for joy, hope and peace, and happiness for all," he said.

In the Gaza Strip, where 3,000 Palestinian Christians live among around 1.4 million Muslims, the head of the tiny Roman Catholic community canceled midnight Mass, citing recent gunbattles between the Fatah and Hamas movements.

Father Manuel Musallem said young Christians in Gaza were scared. "The children told me Santa Claus won't come this year because it's too dangerous," he said.