Israel has withdrawn its troops to the outskirts of Bethlehem - the traditional birthplace of Jesus Christ - as Christians prepared to mark Christmas in the West Bank town.

The army said it pulled back to enable prayer services to go ahead, but the town's Palestinian mayor said celebrations would be muted.

Bethlehem is a sad city Hanna Nasser, Bethlehem mayor

Hours after soldiers redeployed, Latin Patriarch Michel Sabbah - the highest-ranking Roman Catholic clergyman in the Holy Land - was welcomed to the Church of the Nativity by hundreds of people, some waving pictures of Palestinian leader Yasser Arafat.

Israel has banned Mr Arafat from attending Christmas services in the town for the second consecutive year, accusing him of failing to prevent attacks against Israelis.

Israel said Christians with security permits who live in Palestinian-ruled areas of the West Bank would be allowed into Bethlehem, as well as foreign tourists and pilgrims.

Israeli troops took over Bethlehem last month after a suicide bomber from the town blew up a bus in Jerusalem, killing 11 people.

Gloomy mood

Israeli army spokesman Amos Gilad told army radio that troops would stay out of the central square but would remain in the town itself, French news agency AFP reported.

Soldiers were out of sight as Christian leaders arrived

"You will not be able to see a besieged city on television, because we will do everything we can for religious celebrations to take place as planned," General Gilad was quoted as saying.

No soldiers were seen near the Church of the Nativity or in surrounding neighbourhoods, news agencies reported, while troops kept a low profile at entry points into the town.

There was a sombre mood in the town itself, with far fewer people arriving to mark the festive occasion than in previous years.

"Bethlehem is a sad city," said Mayor Hanna Nasser.

"It's the first time in the city's history that the Christmas tree is not lit," he said.

Transport plans

The Israeli Government said it would organise buses to take Christians from the West Bank, the Gaza Strip, and Israel to Christmas services.

Bethlehem's history

315-333: Emperor Constantine builds Church of the Nativity 1099-1187: Christian Crusaders control Bethlehem 1571-1922: Ottoman Empire rules region 1922-1948: British mandate 1948-1967: Ruled by Jordan 1967-1995: Under Israeli control Dec. 1995: Palestinian Authority takes control of West Bank 2001-2002: Israelis move in and out of Bethlehem

"Anyone who wants to go to Bethlehem will have a seat," said government spokesman Ranaan Gissin.

He added that security checks would be carried out on those wishing to travel.

"One cannot ignore that this is not an ordinary Christmas, this is Christmas under fire," he said.

The army lifted a curfew in Bethlehem on Sunday and said it would not re-impose it unless there was an alert.

Arafat anger

Mr Arafat said the situation for Palestinians at Christmas was intolerable.

"Is it fair that the whole world celebrates Christmas in freedom while our people in Palestine and Bethlehem are banned from celebrating Christmas?" he asked.

The Palestinian leader - a Muslim who married into a prominent Palestinian Christian family - attended Christmas celebrations in Bethlehem every year since 1995 until Israel banned him from leaving Ramallah in 2001.

Christians account for about 5% of more than three million Palestinians living in the West Bank and Gaza Strip - most of whom are Muslim.