Bethlehem souvenir store owner Mike Canawati is gearing up for his merriest Christmas in years.

Bethlehem souvenir store owner Mike Canawati is gearing up for his merriest Christmas in years.

A steady stream of pilgrims are trickling into his shop, snapping up olive wood crosses and nativity scenes as keepsakes from the town revered as Jesus’s birthplace. Business isn’t booming. But sales are brisk, which is good enough for Canawati, who was forced to shut up shop altogether for two years when tourism slumped during the early years of a Palestinian uprising – or Intifada – that erupted in 2000.

"More peace means more tourists," said Canawati, wrapping a plastic cherub for a customer as a jazzed-up version of "O Come All Ye Faithful" filtered through the loudspeakers with its message of pilgrimage to Bethlehem.

"During the Intifada there were no tourists. They would have seen tanks and soldiers out here," he said, pointing to the main high street which snakes through the hilly town in the Israeli-occupied West Bank.

Bethlehem is about to celebrate its most peaceful – and profitable – Christmas since 2000.

Tourist levels are the best in seven years, with more than 60,000 people visiting last month compared to about 20,000 a year ago. Many hotels are fully booked for Christmas.

Local leaders are cautious: few pilgrims stay overnight, tourism numbers still hover at just 60-70 percent of pre-Intifada levels, and many Western governments still warn against non-essential travel. But they detect a glimmer of hope.

"There are more foreign tourists this year – everyone can feel it," Bethlehem Mayor Victor Batarseh told Reuters in his office on Manger Square, a bushy Christmas tree in the corner.

PROFIT OF PEACE

Palestinians gunmen and Israeli soldiers fought street battles in Bethlehem during the Intifada but violence has dropped drastically over the past two years, and a U.S.-backed peace drive launched last month has reassured some tourists.

Peace envoy Tony Blair is trying to improve tourist access and facilities in Bethlehem. The British former prime minister stayed overnight in one of the city’s poshest hotels last week to send a message it is safe.

Church leaders, worried about the Holy Land’s dwindling Christian population, have also been trying to drum up business by convincing pilgrims to visit. Their efforts are paying off.

"I wanted to see where Jesus was born – I think it’s something every Christian should do," said 21-year-old Ukrainian baptist Andrew Dubovoy. "I asked the tour agency many times about safety but now I’m in the city I feel fine."

Some, however, say the festive cheer is premature.

Pilgrims – many of them Russians on day trips from Egyptian beach resorts – arrive in tour buses and stay just long enough for a quick trip to the Church of the Nativity and a souvenir shop before heading back through the Israeli checkpoint.

"What we need is more tourists to stay in our hotels, eat in our restaurants and roam around the old city," Batarseh said.

The pre-Christmas buzz also masks the daily hardship of life in Bethlehem. Unlike the romantic image portrayed by Christmas cards and carols, the town is encircled by military checkpoints and the towering concrete wall of Israel’s West Bank barrier.

Israel says the barrier keeps suicide bombers out but Palestinians argue it intimidates tourists and stifles the economy, while eating into land they want for a state.

Saliba Salameh sells falafel – a deep-fried chickpea snack much loved by Palestinians and Israelis – in a prime location in the heart of Bethlehem.

But business is slow despite the uptick in tourism, because Israeli restrictions keep out the locals who once came from Jerusalem and the West Bank for weekend lunches.

Tourists rarely stop to try his falafel.

"They don’t have time to stop and eat any," he said. "They hurry past to the church, then back to the tour bus."