The heavy turnout, its highest in years, helped lift spirits in Bethlehem as leaders expressed hope that the coming year would finally bring the Palestinians an independent state of their own.
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"The message of Christmas is a message of peace, love and brotherhood. We have to be brothers with each other," said Latin Patriarch Fouad Twal, the top Roman Catholic cleric in the Holy Land, as he arrived in town.
Excited tourists milled about the town's Manger Square, as Palestinian dignitaries greeted Twal at the entrance of Bethlehem and his motorcade crawled through the town's narrow streets to celebrate Midnight Mass at the Church of the Nativity compound.
Hundreds of people packed the compound for the service. Palestinian President Mahmoud Abbas, the European Union's foreign policy chief, Catherine Ashton, and Jordanian Foreign Minister Nasser Judeh were among the dignitaries in attendance.
In his homily, Twal addressed Abbas, telling the president he prays for a "just and equitable solution" for the Palestinians. Twal, himself a Palestinian, also expressed sympathy for the plight of the Palestinians, particularly families with relatives imprisoned by Israel or those who have suffered as a result of the conflict with Israel.
"The world is living through a long night of wars, destruction, fear, hate, racism and, at the present time, cold and snow," he said. Lamenting strife in Africa, Asia and the Middle East, he also urged worshippers "not to forget our own problems here: The prisoners and their families who hope for their release, the poor who have lost their land and their homes demolished, families waiting to be reunited, those out of work and all who suffer from the economic crisis."
Yet Twal called on people not to despair. "We are invited to be optimistic and to renew our faith that this land, home of the three monotheistic religions, will one day become a haven of peace for all people," he said.
"Oh Holy Child, God of goodness and mercy, look with kindness on the Holy Land and on our people who live in Palestine, in Israel, in Jordan and all the Middle East. Grant them the gift of reconciliation so that they may all be brothers - sons of one God," he said.
The number of visitors to Bethlehem remained below the record levels of the late 1990s, when Israeli-Palestinian peace efforts were at their height.
Following Palestinian Intifada in 2000, the numbers plunged. But thanks to a period of relative calm, they have been steadily climbing in recent years – and got an extra push this year thanks to the resumption of peace talks.
"Our message is a message of justice and peace," said Palestinian Tourism Minister Rula Maayah. "We Palestinians are seeking peace and we deserve to have peace and our children deserve to live in peace. "
Maayah said the number of visitors to Bethlehem was expected to jump by about 14 percent from last year.
A spokesman said 10,000 foreign visitors had entered town by the early evening, slightly higher than last year. Israel's Tourism Ministry, which coordinates the visits with the Palestinians, said the number could reach 25,000 during the holiday season.
Despite the Christmas cheer, Mideast politics loomed in the background. In order to enter Bethlehem, Twal's motorcade had to cross through the hulking concrete separation barrier. Israel says the barrier is needed to keep attackers from entering nearby Jerusalem, but Palestinians say the structure has stifled the town and stolen their land.
Maayah said that the barrier, along with nearby Israeli settlements and Israeli control of archaeological sites in the West Bank, has made it difficult to develop the tourism sector.
In addition, few Palestinians seem to think that the current round of peace talks will bear fruit. US Secretary of State John Kerry relaunched the talks last summer, but there have been no signs of progress.
Christmas also serves as a reminder of the dwindling numbers of Christians who live in the Holy Land. Over the decades, tens of thousands of Christians have left, fleeing violence or in search of better opportunities overseas. Christians now make up a tiny percentage of the population.
Bethlehem is now only one-third Christian, with most residents Muslim. In an annual gesture, Israel permitted some 500 members of Gaza's small Christian community to leave the Hamas-ruled territory and cross through Israel to attend the celebrations in Bethlehem.
But for one night at least, residents and visitors brushed aside their troubles to celebrate the holiday.