Tens of thousands of tourists and pilgrims packed the West Bank town of Bethlehem for Christmas Eve celebrations, bringing cheer to the traditional birthplace of Jesus on a raw, breezy and rainy night.

With turnout at its highest in more than a decade, proud Palestinian officials said they were praying the celebrations would bring them closer to their dream of independence.

Meanwhile, Christmas celebrations took place around the world, with Pope Benedict XVI celebrating Christmas Eve Mass two hours before midnight at Vatican City and urging the faithful to look beyond the commercialisation of the season and discover its true meaning.

Bethlehem, like the rest of the West Bank, fell on hard times after the Palestinian uprising against Israeli occupation broke out in late 2000. But as the fighting subsided in recent years, tourists have returned in large numbers.

By late last night, the Israeli military, which controls movement in and out of town, said some 100,000 visitors, including foreigners and Arab Christians from Israel, had reached Bethlehem, up from 70,000 the previous year.

Thousands of Palestinians from inside West Bank also converged on the town.

"It's wonderful to be where Jesus was born," said American Irma Goldsmith, 68, of Suffolk, Virginia. "I watch Christmas in Bethlehem each year on TV, but to be here in person is different. To be in the spot where our saviour was born is amazing."

After nightfall, a packed Manger Square, along with a 50ft Christmas tree, was awash in Christmas lights, and the town took on a festival-like atmosphere.

Sellers hawked balloons and corn on the cob, bands played Christmas songs and tourists packed cafes that are sleepy the rest of the year. As rain began falling in the early evening, many people cleared out of the square and raced to nearby restaurants.

Festivities culminated in Midnight Mass at the Church of the Nativity, built over the grotto where tradition says Jesus was born.

Among the visitors were a surprisingly large number of veiled Muslim women with their families, out to enjoy an evening out in what is normally a quiet town.

"We love to share this holiday with our Christian brothers," said Amal Ayash, 46, who came to Manger Square with her three daughters. "It is a Palestinian holiday and we love to come here and watch."

Israel turned Bethlehem over to Palestinian civil control a few days before Christmas in 1995, and since then, residents have been celebrating the holiday regardless of their religion.

Pilgrims from around the world also wandered the streets, singing Christmas carols and visiting churches.

Bethlehem is a far cry from the pastoral village of biblical times. Today, it is a sprawling town of cement apartment blocs and narrow streets that combined with several surrounding communities has a population of some 50,000 people.

Located on the south-eastern outskirts of Jerusalem, Bethlehem is surrounded on three sides by a barrier Israel built to stop Palestinian militants from attacking last decade.

Palestinians say the barrier has damaged their economy by constricting movement in and out of town. Twenty-two per cent of Bethlehem residents are unemployed, the Palestinian Authority says. Israeli settlements surrounding Bethlehem have added to the sense of confinement.

The Christmas season is essential for Bethlehem's economy, which depends heavily on tourism.

Most visitors entering Bethlehem, including the top Roman Catholic official in the Holy Land, Latin Patriarch Fouad Twal, had to cross through an Israeli-controlled checkpoint to reach town.

Mr Twal, a Palestinian citizen of Jordan, arrived in a traditional midday procession from Jerusalem and later, celebrated Midnight Mass at the Church of the Nativity.

In his homily, he referred to the Arab Spring, imploring Arab leaders to have "wisdom, insight and a spirit of selflessness toward their countrymen" and praying for reconciliation in Syria, Egypt, Iraq and North Africa.

He also noted the Palestinian campaign to join the United Nations, and complained that the UN was "less than united" in its support for the now-stalled initiative. He also criticised the international community for pushing the Palestinians to "re-engage in a failed peace process" which has "left a bitter taste of broken promises and of mistrust".

The patriarch also lamented the Israeli barrier enveloping Bethlehem, saying: "Let us tear down the walls of our hearts in order to tear down the walls of concrete," and prayed for peace for both Palestinians and Israelis.

The Palestinians have subtly tried to draw attention to their plight with this year's Christmas slogan "Palestine celebrating hope", a veiled reference to their bid to win UN recognition.

Palestinian president Mahmoud Abbas told a meeting of Christian leaders last night that he was committed to reaching peace with Israel, despite a three-year standstill in negotiations.

"I hope they will come back to their senses and understand that we are seekers of peace, not seekers of war or terrorism," said Mr Abbas, a Muslim.

"The mosque, church and synagogue stand side by side in this Holy Land."