BETHLEHEM, West Bank (Reuters) – The odor of teargas lingered over the ancient cobblestones of Bethlehem’s Manger Square long after an Israeli army patrol had rumbled past.

BETHLEHEM, West Bank (Reuters) – The odor of teargas lingered over the ancient cobblestones of Bethlehem’s Manger Square long after an Israeli army patrol had rumbled past.

For the Palestinian inhabitants of this biblical town, it was a stark reminder of the gloom that has settled over this year’s Christmas preparations as Israeli forces maintain a tight grip on their lives.

Many thought the holiday season couldn’t get any worse than the last two years, when a military blockade and Israeli-Palestinian violence choked off the flow of tourists and pilgrims to the town revered as the birthplace of Jesus.

But now, 18 days after troops and armor reoccupied Palestinian-ruled Bethlehem and imposed a curfew following a suicide bombing that killed 11 Israelis on a Jerusalem bus, residents fear they are facing a joyless Christmas.

“This is the place where Christmas was born,” Bethlehem Mayor Hanna Nasser said in the city just south of Jerusalem. “But everything is dead now… We are being subjected to collective punishment.”

Adding to the somber mood was Israel’s threat to bar Palestinian President Yasser Arafat (news – web sites) from making his annual Christmas Eve pilgrimage to Bethlehem as it did last year despite international appeals.

CHURCHGOERS DODGE ARMY PATROLS

But Arafat is not the only one having trouble getting to church. In recent weeks, Christian worshippers have had to dodge Israeli army patrols on their way to the famed Church of the Nativity, and many have been turned back.

“It’s a shame that people have to risk their lives to come to pray,” said Father Amjad Sabbara, head of the Catholic church in the Bethlehem area.

As worshippers trickled in for Sunday mass, Israeli soldiers fanned out on nearby streets, banging on doors and searching house to house while occupants peered from their balconies.

An armored personnel carrier suddenly roared into the stone plaza. A soldier popped up from a hatch and lobbed a teargas grenade into a corner of the square where youths had been collecting stones.

The vehicle then rumbled on, the clatter of its metal tracks echoing off the locked shutters of the town’s closed souvenir shops, mostly empty since the start of a Palestinian uprising for independence in September 2000.

Troops have kept close watch on the fourth century shrine to prevent wanted militants from taking refuge there and repeating a situation that touched off a month long siege in April.

The church still bears the scars of the nightly gunfights between soldiers and militants who were holed up inside.

FEW SIGNS OF RECOVERY

After a string of military incursions over the past year, which the army says are intended to seek out armed militants, the West Bank town is showing few signs of recovery.

Bethlehem, the jewel in the crown of Palestinian tourism when it greeted Pope John Paul (news – web sites) three years ago to mark the 2,000th anniversary of Christ’s birth, is facing economic meltdown.

Souvenir shops have gone out of business, hotels have closed for lack of guests and the king-size tour buses that once plied the streets have vanished.

Electric light bulbs strung across Manger Street still read “2000 Welcome” — as they did to greet the new millennium — but the lights no longer work.

At the six-story Nativity Hotel, there is plenty of room at the inn — so much in fact that the echo of a visitor’s footsteps is the only sound to be heard in its empty lobby.

“Sometimes it’s so lonely here I could die,” said Awatief Khalaf Mawsaarweh, 40, who has gone from supervising a staff of 24 to being the hotel’s caretaker and sole employee.

The few Christmas decorations on display are far outnumbered by posters of gunmen and others killed in the uprising which have been plastered on shop fronts throughout Bethlehem.

Bethlehem officials said Israeli military restrictions had forced the cancellation of many of the holiday festivities, limiting this year’s celebration to religious rituals.

That has left many residents embittered, though some have voiced hope Israel will ease its clampdown or pull its troops out of Bethlehem in the next two weeks as a goodwill gesture.

The army, which says its measures are needed to prevent attacks in Israel, has remained tight-lipped on its plans.

“We do not wish to be in Bethlehem,” a spokesman said. “But we are staying there … because terror organizations do not take a break for Christmas or any other holiday.”