Children dressed as Santa Claus sang carols and rang bells during a Christmas-themed show at the College des Freres, which sits in the biblical city's central market where holiday decorations and wooden nativity scenes line the narrow alleys.
The main attractions in Bethlehem are the 4th-century Church of the Nativity, built over a grotto where Christian tradition says Jesus was born, and the 16-meter (52-foot) Christmas tree in Manger Square.
On Tuesday - Christmas Eve - the acting Latin Patriarch of Jerusalem, Archbishop Pierbattista Pizzaballa, will lead a procession from Jerusalem to nearby Bethlehem and later celebrate Midnight Mass in the Church of the Nativity, squeezing through its narrow sandstone entrance.
The season offers measured cheer for Palestinians in the Israeli-occupied West Bank city, which is separated from nearby Jerusalem by a towering Israeli concrete military barrier.
Bethlehem is enjoying its busiest tourist year in two decades, with foreign pilgrims coming in large numbers, taking advantage of a relative lull in Israeli-Palestinian tension.
Israel said on Sunday it would allow Christians in the Palestinian Gaza Strip to visit Bethlehem and Jerusalem at Christmas, reversing an earlier decision not to issue them permits.