Several thousand people packed Manger Square when a procession led by Latin Patriarch Michel Sabbah - the top Roman Catholic envoy in the Holy Land - entered Bethlehem. Later, he celebrated midnight Mass and headed for St. Catherine's Church, near the Church of the Nativity, where he celebrated midnight Mass.
Speaking to the hundreds of Christians gathered in the ornate church, Sabbah called for Israel and the Palestinians to put an end to violence.
"There seems to be a new Palestinian and Israeli political reality, despite the many complications and hesitations that surround it," Sabbah said. "Leaders with good and honest intentions can make of this new era a time of new blessings ... stopping the past to make room for a new future begin."
Sabbah also expressed his hope that the security barrier "would not always exist," Army Radio reported.