The top Roman Catholic cleric in the Holy Land, Latin Patriarch Fouad Twal, led a prayer for some 1,000 worshippers. "The whole world now is looking at Bethlehem, the birthplace of Jesus," Twal said in his annual address, adding that the message of Jesus was one of "love and reconciliation."
Bethlehem lies 10 kilometers (six miles) south of Jerusalem. Entry to the city is controlled by Israel, which occupied the West Bank in 1967.
Following a Palestinian uprising that began in 2000, the numbers of visitors to Bethlehem had plunged. But thanks to a period of relative calm, they have been steadily climbing in recent years.
Iskandar Salameh, an 18-year-old Palestinian, said the Christmas spirit was uniting those gathered Wednesday. "We all feel that Jesus is with us today," he said.
In Britain, the royal family turned out in force for a Christmas church service, but the newest family member, Prince George, son of Prince William and Kate, was nowhere in sight.
Cicely Howard said she asked about the baby when she greeted Kate outside the church. Howard told the British news agency Press Association that Kate described George as being "more interested in the wrapping paper than the presents." Britain's Queen Elizabeth in a pre-recorded Christmas message urged reflection among the distractions of the holiday period.
In his speech, Pope Francis also recalled the victims of natural disasters, especially Filipinos suffering from the recent typhoon in their homeland.
In North America, many spent a dark and cold holiday following an ice storm.
President Barack Obama encouraged fellow Americans to embrace the spirit of Christmas by volunteering at soup kitchens, buying presents for children in need or organizing food or clothing donation drives.
Mohammed Daraghmeh contributed from Bethlehem, and Cassandra Vinograd from London.
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