Where would we be without joy to the world and goodwill to all mankind? Oh. Well, let's agree the quintessential Christmas message remains timeless, even when actual joy and goodwill are thin on the ground. For the past five years, I've spent half my life in Bethlehem working on a documentary with my wife, the director Leila Sansour; and by working, I mean making tea for her crew. As we finish the final edit, Bethlehem council is slinging its ragbag of festive decorations across Star Street. A giant inflatable Santa Claus has appeared outside the pirate DVD shop. It seems a good time to ask if the world's Christmas Town has anything special to tell us about peace on Earth.
Like a model prisoner who took his chance to learn an honest trade, my years in Bethlehem have turned me into a decent tour guide. A good starting point, always, is Shepherds' Field, where the original Christmas message was delivered – by a multitude of the heavenly host. If this seems far-fetched, the secret to a good tour is not to betray scepticism. Treat the material as Gospel, as it were, and you can't go far wrong. I watch the local guides as they recount the Christmas story to pilgrims from the Philippines, Nigeria or, as today, Ukraine and try to pick up tips. The Ukrainians wear tight, bright clothes, as though undecided whether to head for the beach or a cabaret.
This is one thing I don't understand about European pilgrims. If you've travelled halfway around the world for a religious experience, why go casual? The Africans always wear their Sunday Best. Yet this year has been the hottest on record, so I should give the Ukrainians some leeway. It is December, the sun is blazing hot and the brush tinder-dry. Across the north of Israel, forest fires have killed 42 people and Bethlehem's fire trucks have made the five-hour journey to Mount Carmel to answer Israel's distress calls.
I sit and watch a gecko toasting on a wall as the guide begins his spiel. I know him slightly, a chubby guy named Issa. I wonder if he will mention the other, rival Shepherds' Field, tended by the Orthodox Church half a mile up the road. At this very moment, you can be sure, another guide is describing a sky full of angels to pilgrims from Russia, Serbia or Greece.
Bethlehem is Leila's home town and her film, The Road To Bethlehem, is the story of a journey back home. For her. For me, it's the story of visiting a foreign town and staying for a really long time. Leila is from a Christian family and while only around 1% of Palestinians are Christians, almost all live in Bethlehem. Not that they form a cohesive group. They include Orthodox, Catholics and Melkites, as well as Syriacs, Lutherans, Armenians and a sprinkling of Protestant Evangelicals. For a town that supposedly stands for goodwill among men, Bethlehem is remarkably factious. Think of it like a puddle in the Amazon rainforest: small but jam-packed with micro-climates. The array of Christian sects is only a part of this biodiversity.
A stone's throw from Shepherds' Field, on the fringes of the desert, live the Ta'amra Bedouin, whose oldest women, grandmothers in their 80s, still have traditional blue-tattooed faces. The rivalry between the people of Bethlehem and the nomadic shepherds has shaped the town's story since the time of Judges, Kings and the rest of the Old Testament.
Then there is the rivalry between the villages and the town, a conflict heightened by the inflated airs of urban Bethlehemites. If you sit still for long enough here, the world seems to pass by your door, whether as tourists, aid workers or politicians. When my neighbours call Tony Blair "Tony", it's because he asked them to. In contrast, the villages are embedded in a life that, despite polytunnels and certificates of organic farming, has not changed… well, ever, I suspect.
Nothing embodies Bethlehem's diversity like the story of the Syriacs. This small community lives between two narrow flights of steps in Bethlehem's souk quarter. The health of their elderly priest is a cause for concern, though he boasts he is "nuclear-powered". His cassock hangs square from his box-like frame and skims the floor. If he is not nuclear-powered, he may possibly be on wheels. He is a gregarious man with a prodigious memory, which he claims holds 2,000 hymns. Standing propped against his pulpit, he launches into a rising drone that, at last, I recognise as God Save The Queen. Father Yacoub claims the British borrowed the song from Syriacs they met in India in the 17th century. The words to the Syriac version are different, of course, but all words are different in the Syriac church: they speak Aramaic, the language of Christ.
With the collapse of the Ottoman Empire in the first world war, the Armenians and Syriacs were the first 20th-century refugees to reach Bethlehem. In 1948, they were joined by Palestinians driven from the newly declared state of Israel. The Christians found shelter in the many convents around town. Muslims were housed in three tent cities that have now evolved into improvised townships, the newest parts of Bethlehem's ecosystem. Each morning I go running and, improvising with no map, I quickly get lost. Two months ago, I ended up running through the largest refugee camp followed by 30 kids chanting, "Hup, hup, hup." Which was a lot of fun, for them.
As Father Yacoub serenades me, his scout band kicks up in a courtyard above. It's a fine show of life, if not musicality. The Armenians and Syriacs have flourished in Palestine. The last ambassador to Paris, Hind Khoury, is a local Syriac; the current ambassador to Britain, Manuel Hassassian, is a Bethlehemite Armenian. Yet among the longer-established Christian families, there is a deep sense of foreboding. Historically, the Christians have formed an ascendancy in Bethlehem, but it is increasingly artificial. The mayor of Bethlehem is Christian, but only because of a special decree by the president. The favoured treatment ought to reassure the Christians, but instead leaves them feeling like giant pandas monitored by a concerned world for signs of decline. These are families – Handal, Dahbdoub, Hazboun – whose names appear in the earliest 19th-century Baedeker guidebooks as innkeepers and mother-of-pearl carvers. Most still work in the tourism industry but the past decade has shown how fragile their trade is. A series of Israeli invasions between November 2001 and summer 2002 led to a dramatic eight-year collapse of tourism. In 2006, unemployment hit 60% in Bethlehem, compared with 25% across the rest of Palestine. Almost all my neighbours were out of work. Many are still deeply in debt.
The first Sunday in December brings a unique tradition, the passing over of the Christmas pudding. It's quite a localised tradition, involving only me and the next-door neighbours, who each year ask if I can bring them a Fortnum & Mason Christmas pudding. As I appear at the door, they leap around, crying, "Welcome, welcome." I always ask, why are they so excited? Christmas pudding is made entirely of stuff we grow in our gardens in Bethlehem, all the delicacies discovered by the Crusaders, such as raisins, candied peel and almonds. I wonder, do my neighbours have a secret plan to repatriate the ingredients, one pudding at a time? They give their usual answer: it's a Christmas tradition. We respect traditions here, the old and the new, from inflatable Santas, to jokes about the dim-witted people of Hebron, to complaints about the Palestinian Authority.
Why complain about the government? Moments after my arrival, we have a good reason. The next-door mosque begins the call for prayer and the noise is so intense, we can no longer hear ourselves tell offensive jokes about Hebronites. The story of how we got the world's loudest mosque goes back to the invasions of 2001, when an Israeli F-16 bombed the offices opposite our house. The bomb shattered all our windows, and flattened a small mosque. There was nothing for it: a new one had to be built. How the mosque mutated into a multistorey affair, on our side of the street, is a mystery. The minaret bristles with loudspeakers cranked to maximum. The muezzin has a voice only a banshee could love, and only if she was the fond mother banshee of a tone-deaf baby banshee. Jordan has imposed a single, synchronised prayer call on all its mosques and the Palestinian Authority says it intends to do the same. Nobody believes it.
These annoyances can be multiplied a hundredfold, and Bethlehemites are happy to single out every one and have a good moan. We are a moany bunch but this place encourages it. Wherever you look in Palestine, any kind of administrative organisation is so absent, we might be a test case for Tea Party-style small government. As I drive my car around unlit streets, I ignore no entry signs and parking restrictions without a thought. You think the Highway Code serves a function? It really doesn't. But ultimately, weak government is a problem. In Bethlehem, the government operates in only 13% of the region. In the orchards that cover our hills, the police and courts are powerless to protect private property from either Palestinian squatters or Israeli settlers. The absence of government depresses expectations. Good government creates an environment in which citizens are willing to bank on their future. Prime minister Salam Fayyad recognises this, at least. He has declared Palestine will have a fully functioning government by next summer. This is a land where water turns to wine and men rise from the dead, but if he pulls off his plan, it really will be a miracle.
Bethlehem is changing rapidly. The majority of the 40 settlements that form a ring of concrete around the town emerged after the Oslo Accords; many have appeared since 2001. When I first visited, in the early 90s, Leila and I would drive her brother to high school in Jerusalem and stay to do our shopping. Since Oslo, it is all but impossible to visit Jerusalem. The enforced separation has turned East Jerusalem into a ghost town and profoundly changed Bethlehem, which has been thrust into a new role as a regional hub. On weekdays, the town is packed with farmers who can no longer use Jerusalem's markets. On holidays, Manger Square is filled with people praying because they cannot visit al-Aqsa mosque. The city feels overcrowded, and the situation is getting worse. As the settlements expand, they force the farmers off their land and into Bethlehem, where they hope to find work. Bethlehem's ecosystem is under pressure: the Bedouin, the fellahin and the froufrou, all of us, must learn to share a city under much closer quarters than ever before.
So how is the town's quotient of goodwill? How much joy is it sending to the world? The least one can say is that Bethlehem is surviving. The city really is an Amazonian puddle; it may be fragile, but its complexity is also a source of strength. Bethlehem has always been a factious kind of place. Aside from an obscure Egyptian document known as the Armana Letter, the earliest account of Bethlehem comes from the Bible. The Old Testament was written with a single purpose in mind: to establish the primacy of Judah, the tribe of David, over all others. Yet when its authors describe a real, living city such as Bethlehem, Judah is revealed as just one player among many, in a region filled with Moabites, Amorites, Jebusites, Hittites, Philistines and others. Even the claim that the city of Bethlehem belongs to Judah by divine right is surprisingly weak. One would expect the Bible to be forceful – to say, this is what God wants, get over it! The truth is almost the opposite. The writers lose themselves in legalistic arguments about leases on burial plots, rights over water holes and anything else that might establish ownership in the face of rival claims. Whatever this is, it is not God's Law. It's closer to international law, or its Bronze Age equivalent. God barely gets a look-in.
Does this reflect a Bronze Age reality? I feel it must, because it closely reflects modern-day reality. The city of Bethlehem is home to so many people and, with a weak central government, we spend our time arguing, jostling and negotiating for space. What saves the city is the fact that no one can claim absolutely primacy. No one ever doubts their neighbours have just as much right to be here, no matter whether they are refugees, Bedouins, farmers, tourist shop-owners, Armenians or, even, English. We all belong to Bethlehem.
I was born in Rochdale, a factious town in east Lancashire. I grew up on streets of ramshackle Victorian terraces, among eastern Europeans, the Irish and Asians, attending a school that even 30 years ago was a quarter Muslim. In all my years there, I do not remember a single discussion about ethnicity or faith that did not revolve around the distinction between natives and immigrants, and the issue of who had the primary claim and who had the responsibility to adapt. I doubt there will ever be another way to speak about such things in Britain. But Bethlehem is different. Peace, goodwill and joy to all mankind? Why not? The past five years have convinced me that Bethlehem is special. The quality that helped this city to welcome refugees is the same quality that has kept it alive though a torrid 4,000-year history. May it survive for ever.
• Editor's note: owing to an error, this article originally named the Hamas leader Ismail Haniyeh, instead of Salam Fayyad, as Palestinian prime minister. This was amended at 17:00 on 19 December 2010.
