The December 6 announcement by US President Donald Trump unleashed demonstrations and clashes, including in Bethlehem in the Israeli-occupied West Bank where Christians will mark the birth of Jesus in a midnight mass.
On Bethlehem's Manger Square, hundreds of Palestinians and tourists gathered in the cold near a huge nativity scene and Christmas tree to watch the annual scout parade.
They took pictures as a marching band made its way through the square towards the Church of the Nativity, built over the spot where tradition says Mary gave birth to Jesus.
Twelve Palestinians have been killed since Trump's declaration, including a 19-year-old who died of his wounds today nine days after he was shot during a Gaza protest.
Nahil Banura, a Christian woman from Beit Sahur, a town near Bethlehem, said Trump's decision had made the run-up to Christmas "miserable".
"People are only going out to vent," said the 67-year- old, whose granddaughter wore a Santa Claus hat and clutched a pink balloon.
Archbishop Pierbattista Pizzaballa, apostolic administrator of the Latin Patriarch of Jerusalem, arrived in Bethlehem after noon and shook hands with local personalities on his way to the Church of the Nativity.
Pizzaballa said last week that "dozens" of foreign visitors had cancelled their Christmas trips after Trump's announcement.
But Israel's tourism ministry has said Christmas preparations have not been affected, and it expects a 20 per cent increase in the number of Christian pilgrims this year compared with 2016.
And the Israeli army officer in charge of the Bethlehem area said that while tensions had been high in the area following the Jerusalem announcement, he did not expect trouble on Christmas.
"We've reinforced our troops, and are ready for any scenario," Lieutenant Colonel Benny Meir told AFP.
Israel seized east Jerusalem in the 1967 Middle East war and later annexed it, in moves never recognised by the international community.
In a statement before Christmas, Palestinian president Mahmud Abbas said Trump's announcement "encouraged the illegal disconnection between the holy cities of Bethlehem and Jerusalem, both separated for the first time in over 2,000 years of Christianity".
Mitri Raheb, pastor of the Evangelical Lutheran Christmas Church in Bethlehem, told AFP today that Christmas this year is a "mix of sadness and joy" because of the US decision on Jerusalem, which he called "the beating heart of Palestine."
Hundreds entered the church, chanting slogans calling for its demolition, destroying furniture and attacking worshippers before security forces restored order.
Christmas decorations have meanwhile become more visible in Christian areas of the Syrian capital Damascus this year.
In the central city of Homs, Christians will celebrate Christmas with great fanfare for the first time in years after the end of battles between regime and rebel forces, with processions, shows for children and even decorations among the ruins.
Hymns filled a Mosul church today as worshippers celebrated Christmas for the first time in four years after the city's recapture from the Islamic State group in July.
Muslims, as well as local and military officials, stood with Christian worshippers amid the candles and Christmas trees at St Paul's Church.
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