BETHLEHEM, West Bank (Reuters) - The lights are going up and carols are ringing from Manger Square, but Christmas cheer hasn't spread to all of Bethlehem's residents.
While calm has returned to the Biblical birthplace of Jesus, scene of heavy fighting during the Palestinian Intifada, or uprising, in the early years of this decade, big-spending foreign tourists have mostly not, say the shopkeepers and restaurant owners who depend on them for their livelihood.
Last year, the West Bank town enjoyed its first tourism boom since the Intifada. About 1.5 million people visited Bethlehem in 2008, according to the Palestinian Ministry of Tourism.
"People's presence here during Christmas reflects on coming seasons, and how well the city is doing and whether the situation in the region is good," said Elias al-Arja, president of the Palestine Hotels association.
But even as visitor numbers are projected to rise again, shopkeepers insist they are not feeling the benefit.
Foreign tourists are whisked through Bethlehem from nearby Jerusalem on half-day visits organized by tour companies located in Israel. The two cities are divided by just a few kilometers (miles) but also an Israeli wall that complicates the journey.
"I have a clear impression that the Israeli government would prefer that I not come here," said Doris Warrell, an American Protestant minister who was one of the few foreigners that stayed to browse a Christmas market set up this week on Manger Square outside the Church of the Nativity, which stands on the spot revered by Christians as the birthplace of Jesus.
Visiting from the United States, Warrell reflected on a very different trip to Bethlehem in 1994, shortly after the launch of the Israeli-Palestinian peace process which is now stalled.
"People were happy and celebrating. There was a checkpoint, but you didn't have this huge visual impediment," she said, in reference to the West Bank barrier, which Israel says it has built in the past five years to thwart attacks on its citizens.
"As someone who wants peace for both Palestinians and Israelis, to see that wall there is just an indicator of how many steps back we've taken," Warrell said. "Things for some people may not be as violent, but they're still not peaceful."
Israel says the barrier has largely succeeded in reducing violence. Palestinians, backed by a ruling from the World Court, see its construction on occupied West Bank territory as a land grab and a tool to consolidate Israeli control of Jerusalem.
Most of the visitors to the Bethlehem Christmas market, selling decorations, needlework, olive oil and jeweler, were local Palestinians: "Everyone knows how great it is to come to Bethlehem during Christmas," says 20 year-old Hanne, from the West Bank administrative center of Ramallah.
"And if the people of Bethlehem make us feel the situation is quiet, and they hold these kinds of activities, it encourages us Palestinians to visit."
The new government of Israel's right-wing prime minister, Benjamin Netanyahu, has taken steps to ease freedom of movement for Palestinians around the West Bank, cutting back on military checkpoints in an effort to promote economic growth.
Palestinian leaders, while spurning peace talks in protest at Netanyahu's refusal to do more to curb Jewish settlement in the West Bank, acknowledge that his "economic peace" moves have contributed to economic growth of some 7 percent this year.
But Bethlehem merchants complain that fellow Palestinians do not spend like the foreign tourists, who once gave business a major annual boost in the years when violence seemed to be over.
And those foreigners who do come are often not big spenders.
"During Christmas, there will be more than 50 buses of Filipinos and other foreign workers from Tel Aviv and Netanya," said Tawfiq Lama, a partner in one of the largest family restaurants and souvenir shop businesses in Bethlehem.
"No one will profit from their tourism," he said.
Christian Filipinos are widely employed in Israel, often as care workers for the elderly.
Bethlehem's hotels are enjoying a boom, however, thanks largely to demand from Arab visitors from other parts of the West Bank and Israel who come for a holiday, said Arja, who expects his business to rise 60 to 70 percent this year.
"At Christmas time, there won't be a single empty room."
Kholoud Daibes-Abu Dayyeh, tourism minister for the Palestinian Authority, expected visitor numbers to rise.
But that projection gives little comfort to Samer Kara'a, owner of a restaurant and souvenir shop, who wants foreigners to spend more time and money in Bethlehem, whose merchants live by sales of their ubiquitous, carved olive wood crucifixes, Christmas decorations, Nativity cribs and ornamental camels.
Foreign tourism to Bethlehem is largely organized by tour companies run from Israel, locals say.
"They do the shopping in Israel, and they just come here for two hours," Kara'a said. "And we cannot say no because we want them to come to Bethlehem."
Additional reporting by Mustafa Abu Ganiyeh, editing by Tom Perry and Samia Nakhoul