BETHLEHEM, DEC. 24 -- The streets of the little town where Jesus was born were filled tonight with hundreds of soldiers and policemen, handfuls of pilgrims, a few hardy tourists and, outside the Baby Market toystore, two skinny Santa Clauses ringing bells to drum up customers who never arrived.

"It doesn't feel like Christmas," said the proprietor of a nearby cafe. Her comment, and the icy rain that fell steadily through the afternoon and evening, summed up the mood here -- grim, and just a touch self-pitying.

Fifteen days of civil violence, 21 reported shooting deaths and hundreds of arrests in the Israeli-occupied West Bank and Gaza Strip have destroyed anyone's idea of what Christmas should be in this Christian Arab city. And the heavy military presence, provided by anxious Israeli leaders determined to forestall incidents that might mar the holiday and further damage Israel's bruised image overseas, served to remind those who ventured here that this was indeed a very different Christmas.

"People are not in a spirit to celebrate," said Elias Freij, mayor of this normally bustling West Bank city, less than 10 miles south of Jerusalem. He canceled his own Christmas Eve cocktail reception for the first time in 16 years as mayor and went home early in the afternoon.

"It's very gloomy, very sad. Many Christians did not even buy Christmas gifts or decorations or clothing. They are staying at home. In such circumstances would you hold a cocktail party?

"Christmas is the holiest day of the year in Bethlehem and what is more important than to celebrate the birth of Jesus Christ? We must beg his forgiveness for not making an elaborate celebration, but he knows the situation," Freij said.

Last year 10,000 pilgrims and tourists came to celebrate Christ's birth. This year, city officials and soldiers at the scene estimated that between 1,000 and 2,000 were huddled under porches and buildings in Manger Square, the heart of the city.

To get here, they had to pass through a series of security checks. There were three military roadblocks on the way to the square and cars with blue license plates -- the color issued to Palestinian residents of the territories -- were backed up in long lines for searches and questioning.

Just below the square was another checkpoint where visitors had to show passports, pass through a metal detector and, in the case of those with Arab features, undergo a pat-down or body search.

Soldiers in full battle gear, armed with M16 automatic rifles and Uzi submachine guns, paced the streets in groups of four and six. Others stood watch atop the Church of the Nativity, scene of the annual midnight mass. From a command center inside the New Tourist Shopping Center, Gen. Amram Mitzna, military commander of the West Bank, oversaw the entire operation.

"This is their holiday, not ours," said an Army spokesman, referring to the Christian Arab community, "and we want them to be able to celebrate it in peace. We will do everything necessary to see that nothing interferes with them."

The territories were quiet for the second straight day. Military officials confirmed they had arrested sveral hundred Palestinians in recent days and set up a new prison outside Hebron to hold many of the arrestees. Gen. Ephraim Lapid, the Army's chief spokesman, said he believed the disturbances had peaked last Monday and were now beginning to subside.

Some of the tourists who came to Bethlehem tonight said they were comforted by the heavy Army presence, while others looked annoyed. Many said they were suprised at how peaceful everything seemed, given the bad news of recent days.

"You wonder if it was all blown out of proportion," said Maureen Riley, from Cheshire, England. "It all seems so quiet."

John Cataldo, a backpacker from Michigan, said soldiers at a checkpoint took his Swiss army knife and then three of them escorted him to the central police station. But after a few tense minutes, Cataldo said they gave him a slip of paper to allow him to reclaim it when he left. "They were actually very nice," he said.

In normal years, Christmas in Bethlehem is a curious mix of the sacred, the profane and the crassly commercial.

Gaudy decorations grace the square and recreational beer-drinking is the main pastime for many tourists who see themselves as participants in a Middle Eastern Mardi Gras. They rub elbows uneasily with somber pilgrims here to pay tribute to the birth of a savior. The sound of the holy choir from the church mixes with Elvis Presley singing "Blue Christmas" from a tinny stereo in a shop down an alleyway.

But the disturbances and the rain this year put a damper on what is normally Bethlehem's singular moment, and made all the gaudy tinsel look forlorn.

The violence that began more than two weeks ago in Gaza and the West Bank did not spread here until last Monday when refugees at the nearby Dehaishe camp blocked the main road from Jerusalem to Hebron. Bethlehemites honored a general strike that shut down the entire West Bank and Gaza Strip, as did the Arab citizens of Israel itself.

Tourist shops on Manger Square that normally remain open 365 days a year closed down that day. "The Israelis called me in the morning and asked me to open up," said the manager of The Nativity Store next to the square. "I said, 'No, I'd like to help you, but I don't want my windows broken.' "

That was the day that Freij announced he was canceling his reception. Bethlehem went into a period of enforced mourning.

The State Department only made matters worse Tuesday, residents say, when it restated a travel advisory first issued in 1982. It included Bethlehem and Arab East Jerusalem in a warning that the West Bank and Gaza could turn violent without warning.

The statement annoyed Freij who said he could not recall a single incident over the years in which American tourists in Bethlehem had been threatened. "Americans are most welcome to come to Bethlehem," he said. "They will be safe and they will be well-received by our people."

Elizabeth and Bucky Brandt, two Americans here from Vermont on their honeymoon, say Friej was correct. "We've had a wonderful time and it's perfectly safe," she said.

But most tourists seemed to heed the State Department warning. After a day of mounting frustration, all of the tourist shops in the new shopping center along the square shut early tonight, on what is normally their busiest day of the year.

"Forget it, there's no business," said the proprietor of the Bethlehem Oriental Store. "I have one dollar in my pocket. It's enough for good luck."

Christmas Eve was just as gloomy at the Dehaishe camp, where an Israeli checkpoint backed up cars for a mile in each direction. The camp's main entrance was sealed off yesterday by soldiers using concertina wire and concrete-filled steel drums as punishment for Monday's stonethrowing and blockage of the highway. Those on foot can pass, but cars and trucks must go around to back entrances.

"It's a real hardship for people," said a spokesman for the United Nations Works and Relief Agency, which oversees the camp. He asked not to be named. "We don't believe there was any justification for this and we've made our objections known to the Israeli authorities."

But while U.N. officials argued, many Palestinians appeared resigned to the measure. "It makes things more difficult, but that's life," said Musa Dulgam, proprietor of a small electrical shop just inside the sealed entrance.

Some shopkeepers in Bethlehem had the same air of resignation. "Look, we've been waiting for peace for 20 years," said the manager of The Nativity Store. "Maybe we'll have to wait 20 more. It's terrible, but what choice do we have?"