Palestinians, I speak to you with a heart filled with grief because the unjust Israeli tanks, cement barriers and guns prevent me from participating with you in the annual celebrations

Yasser Arafat

It is the first time in seven years that Israel has prevented Mr Arafat from attending.

Israel said the Palestinian authorities must first arrest the killers of the right-wing tourism minister Rehavam Zeevi, who was shot dead in October.

Mr Arafat is effectively hemmed inside Ramallah by Israeli security forces. In his address, broadcast on television and radio, he said the ban was "a crime depriving me of my right to participate in the commemoration of the messenger of peace".

The address was relayed via loudspeakers to Palestinians who had been waiting all day for their leader to arrive in Bethlehem's Manger Square.

The Mass is an annual event which has come to symbolise Mr Arafat's role as the leader of both Palestinian Muslims and Christians.

"The unjust Israeli tanks, cement barriers and guns prevent me from participating with you at our annual celebrations," Mr Arafat told a disappointed crowd.

A seat at the church was draped with the Palestinian leader's head-dress to mark his absence from the service, which started at midnight.

Criticism of ban

Israel's decision to prevent Mr Arafat from travelling to the Mass drew criticism both at home and abroad.

Mr Arafat's presence is always widely welcomed

The Vatican weighed into the row on Monday, denouncing what it described as an "arbitrarily imposed" ban.

The BBC's Caroline Hawley says that many residents of Bethlehem, which was handed over to the Palestinian Authority in 1995, see the restrictions on their leader as a reminder that Palestinian self-rule has frequently turned out to be a sham.

Elsewhere in the West Bank, gunmen from Mr Arafat's own Fatah faction critically wounded a Jewish settler. They said it was retaliation for the behaviour of the Israeli Prime Minister, Ariel Sharon.

But even as the violence flared, Mr Sharon and the Israeli Foreign Minister, Shimon Peres, confirmed that talks on new proposals aimed at reviving the stalled peace talks were under way.

Blockade tightened

Mr Arafat had vowed to defy the restrictions, and declared he would walk the 12 miles to Bethlehem if need be.

"No one can humiliate the Palestinians or make them lose their determination," Mr Arafat said from his Ramallah headquarters.

But as the traditional parades got under way in Bethlehem, Israel sent further reinforcements to checkpoints around Ramallah.

According to some reports, Israeli troops carried out stop and search operations on several convoys leaving the city, determined to maintain the travel ban.

Israel wants Mr Arafat to arrest Ahmed Saadat and Jihad Ghoulmi, the two leaders of the Popular Front for the Liberation of Palestine (PFLP) - the militant Palestinian faction behind the attack on Mr Zeevi.

International pressure

The United Nations, the European Union and the United States had all been involved in efforts to persuade Israel to change its mind.

Few tourists are visiting Bethlehem this Christmas

Belgium, which holds the EU presidency, had called on Israel to lift the ban, warning the country's reputation was at stake.

"We believe that this decision spoils a lot of positive points that Israel had gained in European opinion in the past few weeks," said the Belgian ambassador to Israel, Wilfred Geens.

Members of Mr Sharon's cabinet had also been openly critical of the decision.

"This is a silly, inflammatory and unjustified decision," said Industry and Trade Minister Dalia Itzik of the Labor party.

And the Palestinians have expressed outrage.

"This is an example of the arrogance of occupation. It's a humiliation for the entire Palestinian people, Christians and Muslims," said Palestinian cabinet minister Yasser Abed Rabbo.

Mr Sharon, he said, "is playing with fire - he wants blood and tears instead of Christmas carols".

Although a Muslim, Mr Arafat enjoys ecumenical support among Palestinians, and his wife Suha comes from a prominent Christian family.