BETHLEHEM, Dec 24: Hundreds of pilgrims and a new Palestinian leadership came to Bethlehem for Christmas as the town of Jesus's birth celebrated the festival with new hopes for peace.

"We can sense a little more optimism here now with Arafat gone," said visitor Bob Dyer of Montreal, Canada. "We wanted to come last year but it seemed too tense." Israel had barred Yasser Arafat, who died in a French hospital on Nov 11, from midnight mass in Bethlehem during Christmases past, accusing him of fomenting bloodshed - allegations he always denied.

In some rare holiday cheer for Palestinians after more than four years of bloodshed, Israel allowed Palestine Liberation Organization leader Mahmoud Abbas into the West Bank town, which is encircled by army roadblocks and Jewish settlements.

"We want to send a message out that we are seeking peace, and if the other side is ready, we are ready for peace based on justice and our national freedom," said Mr Abbas, frontrunner in the Jan 9 presidential election to choose Mr Arafat's successor.

Israeli Prime Minister Ariel Sharon has called 2005 a year of opportunity for peace, and Mr Abbas has urged a resumption of negotiations on ending violence and creating a Palestinian state alongside Israel.

"Happy Holidays and a Happy New Year," read a sign the Israeli military posted at a main roadblock next to one ordering people to stop to have their documents checked.

WEST BANK BARRIER: Sections of the barrier Israel is erecting in the West Bank run up to the edge of the road leading into Bethlehem, lending a forbidding air. Israel says the barrier keeps suicide bombers out of its cities. Palestinians call it a bid to annex land.