Pilgrims from across the world gathered in Bethlehem on Monday for Christmas Eve, queueing to see the grotto where Jesus is believed to have been born and taking in a festive parade.
Midnight mass was to be held in Bethlehem later, while Pope Francis was also due to hold mass at the Vatican as Christians celebrate the traditional day of Jesus's birth after a tumultuous year.
In Bethlehem in the occupied West Bank, the Palestinian scouts and a bagpipe band paraded in Manger Square across from the Church of the Nativity, built where Christians say Mary gave birth to Jesus.
Crowds, some wearing Santa hats or holding balloons, looked on at the square decked out with a giant Christmas tree and a manger as carols in Arabic played through speakers.
The Catholic archbishop for the Holy Land, Pierbattista Pizzaballa, arrived later in the afternoon and was to lead midnight mass.
Palestinian president Mahmud Abbas was to be among dignitaries attending the ceremony.
This year, visitors are able to view the Church of the Nativity's newly restored mosaics after they were recently cleaned and repaired in a major project.
The first church was built on the site in the fourth century, though it was replaced after a fire in the sixth century.
A newer and more spacious church, St. Catherine, is located next door.
"It's a great opportunity to be in such a symbolic location for Christmas," said Lea Gudel, a 21-year-old French student studying in Jerusalem, who was in Manger Square on Monday morning.
Bethlehem, located near Jerusalem but cut off from the city by Israel's separation barrier, has seen an increase in visitors this season after several down years due to unrest linked to the Israeli-Palestinian conflict.
Palestinian tourism officials and hotel operators have reported their strongest season in years.
"This year is much more calm, much better than last year," said Abeer Nasser, a Palestinian from the nearby town of Beit Sahour who was with her son and daughter and was planning to attend midnight mass.
"Every year I feel more in the mood to celebrate despite the political situation," the 37-year-old added, referring to the Israeli occupation.
Beyond Bethlehem, Christians worldwide were preparing to mark Christmas after a year in which leaders warned over violence against fellow worshippers.
On Friday, Pope Francis said "new extremist groups spring up and target churches, places of worship, ministers and members of the faithful."
"How many Christians even now bear the burden of persecution, marginalisation, discrimination and injustice throughout our world," the pope said.
"Yet they continue courageously to embrace death rather than deny Christ."
In Britain, Queen Elizabeth II will call for respect and civility in a Christmas message delivered with the country badly divided over its impending exit from the EU.
Barcelona was meanwhile on alert after the US State Department warned of the risk of a terrorist attack in Spain's second-largest city during the Christmas holidays.