BETHLEHEM, West Bank –– The Israeli army pulled troops back to the outskirts of Bethlehem on Tuesday, maintaining a low profile in the biblical city to allow pilgrims to celebrate the Christmas holiday.

But in the Gaza Strip, Israeli soldiers fired a tank shell at Palestinians between the Karni and Erez crossings with Israel, killing one young man and wounding three others, Palestinian hospital officials said. Further information was not immediately available and the army said it was checking the report.

The incident raised tensions as Christians prepared for the Christmas holiday in Israeli-occupied Bethlehem. The city known as the traditional birthplace of Jesus was cheerless and subdued – the municipality refused to put a Christmas tree in Manger Square across from the Church of the Nativity to protest the Israeli troop presence.

There were no glistening lights, no bells, no holly – and few, if any, tourists.

There was no visible Israeli military presence either – soldiers manning the entrances to the town checked cars going in, but armored vehicles and uniformed soldiers stayed outside.

This year marks the first Christmas since 1994 that Bethlehem has been under Israeli occupation during the holiday, and Palestinian Christians – who make up nearly half the city´s 27,000 population – said they could not recall a worse Christmas.

"The people of Bethlehem do not have the spirit of celebrating Christmas. There is no joy in people´s hearts," said Raed Zarrouk, 26. "I see no decorations, no fireworks and no tourists."

Latin Patriarch Michel Sabbah, the highest-ranking Roman Catholic clergyman in the Holy Land, led a procession from Jerusalem to Rachel´s Tomb in Bethlehem. Sabbah was greeted by Palestinian Boy Scouts – carrying Palestinian flags and pictures of Yasser Arafat – and escorted into the church.

The Israeli army said it redeployed troops to the outskirts of the city to allow celebrations to take place without hindrance. Israeli- Arab Christians will be allowed to enter the city on public transportation, and Christian residents of the West Bank will be allowed in with special permits.

"We will make every effort to facilitate the celebrations. There is now no curfew on Bethlehem and we hope to keep it that way. We shall facilitate efforts to allow anybody to enter who wants to worship," the army said. "Where we need not be – we will not be."

Israeli troops have raided Bethlehem repeatedly this year, and began their most recent stay on Nov. 22, after a suicide bomber from Bethlehem blew himself up on a Jerusalem bus, killing 11 Israelis.

Two years of Mideast violence has kept foreign visitors away, bankrupting many Bethlehem merchants who count on a busy Christmas season for their livelihood. Doors were open Tuesday at souvenir shops, but no customers were inside.

Bethlehem Mayor Hanna Nasser called it a "sad Christmas" and said the only way to end the suffering on both sides was with the creation of an independent Palestinian state.

"Our message to the world is to restore peace to the town of Bethlehem and all the Palestinian territories and to give the Palestinians a chance to live as real humans," Nasser said. "We hope next year we´ll have a better Christmas – and a real one."

A revised, U.S.-backed blueprint for Mideast peace and eventual Palestinian statehood sharpens demands for the Palestinians to end attacks on Israelis and enact serious political reform, according to a draft obtained Tuesday by The Associated Press.

The latest of several drafts says Palestinians must "immediately undertake an unconditional cessation of violence." Previous versions did not use the word "unconditional."

A diplomat who deals with the Palestinian Authority said this and other shifts in nuance were inserted at the insistence of the United States during recent meetings of the so-called "Quartet" of peacemakers – the United States, the United Nations, Russia and the European Union.

Compared with earlier versions, the seven-page document adds a phrase making Palestinian statehood conditional on "a (Palestinian) leadership acting decisively against terror and able to build a practicing democracy based on tolerance and liberty."

Arafat, a Muslim, was banned by Israel from attending Christmas Mass in Bethlehem for the second straight year. Speaking to a Christian delegation at his Ramallah headquarters on Monday, the Palestinian leader condemned Israel for its presence in Bethlehem but said he still holds out hope for peace.

"Our message on Christmas Eve is a message of love, peace and forgiveness, of Israeli and Palestinian coexistence and respect for all humanity," Arafat said. "We strongly condemn violence, killing, destruction and the prevention of others from exercising their rights to celebrate their holy occasion."

About 200 Israelis representing a group called "Tayush," or Coexistence, arrived in the city, some bringing wrapped gifts for Palestinian children.

"I am here to show solidarity with the innocent people who are living under occupation," said Shuli Hartman, 50, of Tel Aviv. "There is no way that one side can live in happiness while the others suffer." (© 2002 The Associated Press 12/24/02)