Israel said an army cordon around Bethlehem would be lifted today for ongoing Christmas festivities, but Palestinian leader Mr Yasser Arafat was still banned from going to Jesus's birthplace.
Israeli security sources said Israeli forces had partly redeployed by early morning from outside the West Bank town and that the withdrawal was continuing. Mr Arafat remains stranded in the Israeli blockaded West Bank city of Ramallah.
The lifting of the cordon was announced late last night after a day of relative peace and Israeli-Palestinian talks on ending 15 months of bloodshed in the Palestinian uprising against Israeli occupation.
But it came too late for Christmas Eve mass, which Israel barred Mr Arafat from attending, although it could ease travel to the town for other festivities, including next month's Greek Orthodox and Armenian Christmas.
"The cordon will be removed...in order to ease the celebration of theholiday in the city...to facilitate maximum access to the site of worship to Christians from Israel, the Gaza Strip and the West Bank", the Defence Ministry said.
Israeli forces have maintained a crippling grip on the West Bank and Gaza since the start of the uprising.
Prime Minister Ariel Sharon's government says the blockades are needed as a security measure after suicide bombings killed scores of Israelis, but Palestinians call them collective punishment for the uprising.
Israel said earlier yesterday that Mr Arafat could not go to Bethlehem until he arrested militants who killed a cabinet minister.
The United States has joined international criticism of the ban on Mr Arafat going to Bethlehem.
Palestinian Authority general secretary Mr Ahmed Abdel-Rahman said the decision to keep the ban could thwart efforts to restore calm.
"Their stupid decisions touching on religious issues can never create the suitable atmosphere that allows for calm and stability, Abdel-Rahman told Reuters.
But a senior Palestinian negotiator said talks between Israelis and Palestinians were focusing on proposals that could provide a way out of their current conflict.