There was little Christmas cheer this year in Bethlehem, the traditional birthplace of Jesus. Tourists stayed away, frightened by more than a year of violence, and Israel prevented Yasser Arafat from making his annual pilgrimage.
A few thousand people gathered in Manger Square, most of them local Palestinians.
Posters of Mr Arafat and Palestinian flags outnumbered Christmas decorations in front of the fortress-like 4th Century Church of the Nativity.
Riding a wave of international criticism of Israel's decision, Mr Arafat said in a speech on television: "The Israeli tanks, the barriers and the rifles of the oppressors have prevented me from sharing with you our annual celebration on this divine and blessed occasion."
He said Israel had laid siege not only to Bethlehem, but also to the Muslim holy sites in Jerusalem, adding: "There will never be any security for any worshipper in the shadow of a tank."
An empty chair in the front row, a black and white chequered keffiyeh headdress draped across it, symbolised Mr Arafat's absence during the Midnight Mass at St Catherine's Church next to the Church of the Nativity, built over Jesus's traditional birth grotto.
In front of the chair was a lectern, padded with gold upholstery, and a sign with the Palestinian leader's name.
Another empty chair was reserved for Bethlehem Mayor Hanna Nasser, who boycotted the service because Mr Arafat was banned.
In his sermon during the Midnight Mass, Michel Sabbah, the Latin Patriarch of Jerusalem, criticized Israel for banning Mr Arafat saying Israel was trying to cover up its own opposition to peace by accusing Palestinians of terrorism.