Bethlehem, West Bank ? Thousands of people joined by marching bands, clergymen in magenta skullcaps and children dressed as Santa Claus celebrated Christmas Eve on Sunday in the center of Bethlehem, doing their best to dispel the gloom hovering over Jesus’ traditional birthplace.

Most were local residents or Christian Arabs from neighboring Israel with a sprinkling of foreign tourists.

“It hasn’t really set in that I am here in Bethlehem where everything happened so many thousand years ago,” said an overwhelmed Matt Lafontaine, a 21-year-old university student from Plymouth, Minn. “It’s really exciting. It’s just starting to set in. It’s surreal.”

In an annual tradition, Bethlehem’s residents enacted Christmas rituals that seem out of place in the Middle East. Palestinian Scouts marched through the streets, some wearing kilts and pompom-topped berets, playing drums and bagpipes. They passed inflatable red-suited Santas, looking forlorn in the West Bank sunshine.

Other scenes of this Bethlehem Christmas, however, could be found nowhere else. To get to town, Latin Patriarch 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 separation barrier that separates Jerusalem from Bethlehem.

Israel says it built the barrier to prevent Palestinian suicide 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 mounted on horses. Two Israeli Border Police troops closed the gate behind him.

A security officer is seen next to Palestinian scouts taking part in the traditional Christmas procession Sunday outside the Church of the Nativity in Manger Square in the West Bank town of Bethlehem.

“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 departing for Bethlehem. “Our leaders so far have only made war, they haven’t made peace,” Sabbah said.

Palestinian President Mahmoud Abbas, a Muslim, joined the celebrations, expressing hope that his meeting Saturday with Israeli Prime Minister Ehud Olmert would lead to a peace breakthrough.

“I congratulate our people, especially our Christian brothers, not only here but all around the world for Christmas and the New Year, God bless us,” he said. He called his meeting with Olmert “a good start.”

Sabbah, wearing a flowing gold and burgundy robe, led a procession into St. Catherine’s Church, adjacent to the traditional birthplace of Jesus for midnight Mass.

Hundreds of worshippers packed the cavernous church for the service, as clergymen chanted in Latin amid the sound of bells and organ music. Abbas attended the ceremony, escorted by a large security detail to a front row seat.

Bethlehem’s tourist industry has been hit hard by the last six years of Israeli-Palestinian violence and by the barrier, which Israel began building in 2002, but also by internal Palestinian friction.