Large crowds gathered in the biblical town of Bethlehem on Christmas Eve to begin seasonal celebrations.
The number of visitors to Bethlehem has been steadily rising in recent years as peace talks to resolve the Middle East conflict have resumed.
The BBC reports tourists packed Manger Square in a party atmosphere. The nearby Church of the Nativity sits on the spot where the Bible says Jesus was born.
Three gates in Israel's concrete wall barrier with the West Bank have been opened for Christmas to allow the procession led by the Latin Patriarch coming from Jerusalem to enter the city.
Meanwhile in St Peter's Basilica in Rome, Pope Francis was celebrating his first Christmas Mass since becoming pontiff.
He hailed God's guiding power and urged the faithful to be selfless as he conducted Christmas celebrations as leader of the world's 1.2 billion Catholics.
He led a procession in front of thousands of faithful and senior clergymen in a Christmas Eve mass in Saint Peter's Basilica.
In Vatican City, a life-sized nativity scene has been unveiled in the centre of St Peter's Square.
Pope Francis placed the statue in a nativity scene, then kissed a group of children on their foreheads.
He earlier made a visit to Pope Emeritus Benedict, 86, and said he found his predecessor looking well.