How does Bethlehem look today?
It’s a crowded Palestinian town in the West Bank (not Israel proper), with noisy markets and narrow, crowded streets. The 32,000 residents make their living mainly from textiles, marble, jewelry, and spices. Politically, the situation is complicated and fragile. The mostly Muslim Palestinian Authority has governed Bethlehem since 1995, though by local law, Bethlehem’s mayor must be Christian, and power on the city council is shared between Christians and Muslims. Passage into and throughout parts of the city is controlled by Israel, whose troops occupy the surrounding area and periodically raid Bethlehem itself in pursuit of militants. Bethlehem is also distinguished by its tourism, as visitors from all over the world come to bear witness to what is widely believed to be the birthplace of Jesus of Nazareth.

How do tourists affect the town?

Come December, it’s controlled chaos. Up to 30,000 pilgrims pour into Bethlehem on Christmas Eve alone, filling its 30 or so hotels to capacity. About 1,500 policemen are deployed to keep order. Glittering stars hang from telephone wires, and a huge Christmas tree dominates Manger Square. Merchants sell all manner of souvenirs, from carved olive wood Nativity scenes to mother-of-pearl statuettes of the Virgin Mary. To attract customers, they set up inflatable Santas and snowmen outside their stores, and the streets are decorated with fake pine trees and synthetic snow. Beneath the bustle, however, Bethlehem is literally a town divided.

What divides it?
A 26-foot-high barrier of cement slabs, fences, sand bags, barbed wire, and watchtowers that seals off the town from three sides. Part of a much longer wall that Israel began building in 2002 to run along its border with the West Bank, it has become a festering symbol of Palestinian-Israeli tensions. Many Palestinians say the barrier and its accompanying security apparatus are an affront to the memory and philosophy of the “Prince of Peace,” said to have been born there some 2,000 years ago. “Jesus Christ wouldn’t be able to leave Bethlehem today unless he showed a magnetic ID card, a permit, and his thumbprint,” says one Christian university student.

Why was the wall built?
Israel calls it “a temporary and reversible line of defense,” erected in response to the second Palestinian uprising that began in 2000. Bethlehem saw heavy fighting between Palestinians and Israelis during the conflict, and many of the suicide bombers who attacked Israel were traced to the city. The violence culminated in the spring of 2002 when Israel laid siege to armed militiamen who had holed up in the Church of the Nativity (see box). The siege ended after 39 days, with the holdouts leaving the church and many being banished from the West Bank. Construction of the wall began soon afterward. Since then, Israel says, hemming in the militants has saved countless lives.

How has it affected Bethlehem?
Profoundly. Bethlehem accounts for roughly 20 percent of the Palestinian territory’s gross domestic product, and Palestinians blame the wall for a sharp reduction in tourist revenue. In the past seven years, at least 50 restaurants, 28 hotels, and 240 souvenir shops in Bethlehem have closed. Residents also complain that the wall has made normal life nearly impossible. It once took about 15 minutes to travel from Bethlehem to nearby Jerusalem; now, Palestinian workers routinely wait hours in line to get through. Some merchants are unable to make a living, cut off from their own shops. “We are living in a prison,” says Khalil Jousef. “If you are surrounded by a wall, who will come to you? And where can we go?”

Is that situation permanent?
Actually, as suicide bombings have fallen off in recent years, the tensions between Israel and the Palestinian Authority have lessened, and tourism has returned. In 2008, when world markets were imploding, Bethlehem’s economy grew by 5 percent; about 1.5 million tourists traveled to Bethlehem last year, up from only about 150,000 in 2003. But unemployment still verges on 20 percent, and Christians, who make up much of the merchant class, have been emigrating in large numbers. In 1948, when Israel was founded, Christians comprised 92 percent of Bethlehem’s population; today, the figure is well below 50 percent and shrinking every year.

What is the impact of this exodus?
Some say Bethlehem is in danger of losing its cultural identity. The Rev. Mitri Raheb, a Palestinian Lutheran minister, predicts that if Christians keep leaving, Bethlehem could end up as “a Christian theme park,” filled with churches and other holy places, but devoid of a living, practicing faith. For many, that prospect is unthinkable. “There’s something really special in Bethlehem that you cannot see anywhere else in the world,” says Suha Asfour, a mother of four whose parents moved to California years ago. “Bethlehem is where Jesus Christ was born. Why? To have no Christians?”

Where was Jesus born?
For the faithful, the focal point of Bethlehem is one of Christianity’s oldest surviving churches—the Church of the Nativity, built over an ancient cave said to be the place where Mary gave birth to Jesus. Within the grotto, the exact spot is marked with a 14-pointed silver star set into the marble floor. But no one knows for sure if the legend is true. Neither of the Gospels that recount Jesus’ birth—Luke and Matthew—mentions his being born in a cave; not until about the year 160 did Saint Justin Martyr write of a cave in Bethlehem being revered as Christ’s birthplace. Later, in the third century, the early Christians Origen and Eusebius attested to the tradition. As with many other aspects of the historic Jesus, the location of his birthplace is to some extent a matter of faith. As English historian Robin Lane Fox says, “Early Christian tradition did not remember, or perhaps ever know, exactly where and when Jesus had been born.”