Grey skies and drizzling rain reflected the grim atmosphere on Christmas Day in the town of Jesus' birth, where Mideast bloodshed has washed away hopes for a joyous millennial celebration of the holiday. In the West Bank town of Bethlehem, there were very few tourists in Manger Square, the large plaza fronting the Church of the Nativity, and the streets were nearly bare of Christmas decorations. Three months of Palestinian-Israeli violence - which has taken the lives of at least 345 people, most of them Palestinians - has killed both Christmas spirit and tourism in Bethlehem. Earlier, Palestinian leader Yasser Arafat listening from the front row as Sabbah, a Palestinian, presided over the traditional midnight Mass. He spoke of Palestinians' sufferings - ''our dead and wounded brothers...our demolished houses, our churches and convents shelled, our besieged towns and villages.'' Mr. Arafat's holiday appearance in Bethlehem was his first visit to the West Bank since the violence began, AP reports.