The highlight of the hotel is room No 3, known as "Banksy's Room", where guests sleep in a king-size bed underneath a Banksy artwork showing a Palestinian and an Israeli having a pillow fight.
"Love" and "peace" are respectively graffiti-tagged in English and French on the installation's concrete blocks, while three large wrapped presents are at the forefront of the scene.
Tourists flocked to the hotel Sunday to see the Nativity scene and other works by Banksy as part of their visit to the city during the peak Christmas season. "Banksy has his own contribution to Christmas".
Banksy opened the Walled Off Hotel in 2017 to draw attention to the Israeli-Palestinian conflict.
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Israel says it's necessary to prevent attacks, while Palestinians say the wall separates them from Jerusalem.
The Church of the Nativity, where Christians believe Jesus was born, was set to host Palestinian dignitaries and pilgrims from around the world for a midnight Mass.
The hotel, which overlooks the separation barrier, sarcastically boasts "the worst view in the world". Almost every window opens up to a 30-foot high wall, part of a concrete and fence barrier that snakes hundreds of miles through the West Bank. In 2005, he sprayed nine stencilled images at different locations along the eight-metre-high (27-foot) separation barrier.
The United Nations has described the wall as an obstacle to Palestinians' entry to vital providers and sources and mentioned it "disrupts household and social life, undermines livelihoods and compounds the fragmentation of the occupied Palestinian territory".
"Banksy is trying to be a voice for those that can not speak", the hotel's manager, Wisam Salsa, told reporters at the event, according to the BBC.