Revered by Christians as a place of peace, Bethlehem's Church of the Nativity stood in contrast to symbols of conflict Bush saw earlier in a motorcade from Jerusalem to the city of Ramallah, where he met Palestinian President Mahmoud Abbas.
The route took Bush past Israel's towering concrete and barbed wire barrier in the West Bank, military checkpoints and red-roofed Jewish settlements - for Palestinians, hated symbols of occupation.
In a courtyard next to the centuries-old church in Manger Square, Bush voiced hope a future state would allow Palestinians freedom from the type of security Israel says is needed to stop suicide bombers.
"Some day, I hope that as a result of the formation of a Palestinian state, there won't be walls, and checkpoints. People will move freely in a democratic (Palestinian) state," Bush said.
"That's the vision, greatly inspired by my belief that there is an Almighty, and a gift of that Almighty to each man, woman and child on the face of the Earth is freedom."
After voicing confidence in achieving an Israeli-Palestinian peace deal this year, Bush travelled by helicopter to Bethlehem, a town whose lifeblood tourist industry has been hit hard by the past seven years of violence between the sides.
UPLIFTING VISIT
A devout Christian, he entered the basilica, one of the oldest churches in continuous use in the world, through its small "Door of Humility" and said his soul was uplifted by the "place where our saviour was born".
The door to the centuries-old church, originally built in the fourth century, was positioned low to stop marauders from entering on horseback. Bush visited its grotto, where a 14-point star marks the spot where the faithful believe the Virgin Mary gave birth to Jesus Christ.
In Ramallah, Bush went to Abbas's "Muqata" compound - spruced up with a fresh coat of paint - which stirred memories of late Palestinian leader Yasser Arafat, who spent the last three years of his life under siege there by Israeli forces.
Arafat came to embody the Palestinian struggle against Israel but was reviled by Bush as an obstacle to peace. A photograph of the leader in his trademark chequered kaffiyeh hung above Bush as the U.S. president voiced confidence that a deal to create a state of Palestine was in reach.
Ramallah, usually a bustling business hub, came to a standstill for the visit - the first by a sitting U.S. president to the city about 20 km from downtown Jerusalem.
Many Ramallah residents said Bush was biased in favour of Israel and voiced doubts he would press the Jewish state to halt settlement activity and ease security restrictions they say amount to collective punishment.
Some merchants complained the security measures taken for Bush's visit - Palestinian police were out in force and key roads were blocked off - were bad for business.
"His weapons are being used to kill our kids so he cannot be an honest mediator," said Abu Haitham, a father of eight who sells spinach in Ramallah's market. "I'm incurring losses because of him."
