Last year was the worst, Nadia Yussef said.
Last year, war was in the air. Combined with the continuing Palestinian rebellion known as the intifada, it virtually wiped Bethlehem off the tourist map. Almost no one came.
"There are many more tourists this year so it's much better," said Mrs. Yussef, who manages a souvenir shop on Manger Square. "Look for yourself. You can see people in the restaurants. Last year, there was no one."
Beyond improved commercial possibilities, a breeze of hopefulness stroked the gray stone streets of this ancient town as several thousand pilgrims attended the traditional midnight Mass at St. Catherine's Roman Catholic Church, next to the grotto considered the biblical birthplace of Jesus.
It wasn't just that many more visitors showed up this year than last, Firas Sakhel, a carpet-shop owner, said. This time, he said, there is a Middle East peace process under way, a fragile one perhaps but at least something that might put teeth one day into holiday prayers for peace on earth. 'Something Changed'
"No one could really think about Christmas last year because they were all thinking about the gulf war," Mr. Sakhel said, watching as the Latin Patriarch, the chief Catholic clergyman here, led a procession from his seat in Jerusalem to St. Catherine's.
"This year, something's changed," he continued. "They are hoping that something will happen from this peace process. There is a chance for peace, although it depends on the Americans. If the United States wants peace here, then we will have it."
Elias Freij, Bethlehem's longtime Mayor and a member of the Palestinian negotiating team, saw the peace talks as "the one positive thing" of this holiday season. "Even though it is very slow and frustrating, it is a good process," he said Tuesday afternoon in his office overlooking Manger Square, where many of the town's young people had gathered to listen to Christmas carols over loudspeakers and to see and be seen.
"Peace means freedom," the Mayor said. "Peace means an end to occupation. Peace means an end to confrontation."
But confrontation is a hardy force in the West Bank, and Bethlehem is no exception.
Militant Palestinians opposed to the peace negotiations demanded that businesses stay closed, as they have every Christmas Eve since the start of the uprising four years ago. A leaflet circulated by a group called the National Forces in Bethlehem lamented Palestinian hardships "from the oppression of Israeli occupation" and "the pain and suffering of the Iraqi children" after the Persian Gulf war.
But Mayor Freij and other mainstream Palestinian leaders appealed to store owners to keep their doors open as a sign of solidarity with the peace process. Although most merchants deemed it wiser to heed the militants, shops on Manger Square were ready for customers.
"I strongly condemn the strike today," Mr. Freij said. "It is unnecessary and against our interests."
Simply being open hardly meant doing well.
Bethlehem may have been far livelier than a year ago, but it was still a far cry from the way things used to be. Business was better, but far from good, shopkeepers said.
"Before the intifada, you couldn't move in this square," Mr. Sakhel said. "There were lots of people -- not just foreigners, but Palestinians from Ramallah, from Jerusalem, from other places." Like a Military Fortress
Bethlehem looked like a military fortress after the Israeli Army moved in hundreds of troops, as it has every year since 1967, to block off Manger Square and to patrol narrow and empty streets.
From the vantage of the Israelis, tight security is essential to avert possible terrorist acts, and they would rather endure the public-relations black eye of posting soldiers everywhere on this silent night than suffer the unbridled disaster they suspect would ensue should there be deaths at Bethlehem's holy sites.
Indeed, a Palestinian priest was reportedly stabbed and seriously wounded on Tuesday in a dispute with another Bethlehem resident. But an Israeli police official said the attack was a result of "a commercial dispute" and had nothing to do with Christmas or the uprising.
Even so, the armed presence reinforces for Palestinians the unwelcome fact that they remain under military occupation. Mayor Freij accuses the army of overkill. "I don't think this presence is really essential," he said. "For 25 years under Israel, we've had 25 Christmases in Bethlehem and nothing has happened. So I don't understand this insistence on security."
For a fifth straight Christmas under intifada rules, there were no strings of lights, no parties, no parade sponsored by the muncipality. And no reversal of shrinking numbers of Christians at the traditional place of Jesus' birth. Christians Are Emigrating
As elsewhere in the West Bank, Christians are emigrating overseas for work and study, notably young men. The results have been declining Christian marriages, lowered birth rates and a town of 36,500 that is about 40 percent Christian, compared with nearly 100 percent a few decades ago.
Muslims, too, see the changes that the years have brought, and some say they are hardly for the better.
"A lot of tourists used to come here," Yakub Abu Omar, a street sweeper, said as he surveyed Manger Square. "Not now. There is no room for happiness. Inside their hearts, there is no room."
Photo: Although the initiation of Middle East peace talks has resulted in the return of many tourists to Bethlehem, which was practically deserted last year, the sense of confrontation there is still much in evidence. Israeli officers searched young Palestinians who had passed through a metal detector yesterday at the entrance to Manger Square. (Associated Press) Map of Israel highlighting Bethlehem