When I was in Palestine we only went to Bethlehem on an excursion from Jerusalem, just about 10 miles from each other.
The birthplace of Christ certainly is a major tourist destination here, and it's such a strange experience to wander amidst holy places of so many religions and go through all the security at the Israeli/Palestinian border.
Things certainly haven't improved for travellers in this corner of the world. If (and this is a big IF) you're allowed to cross the border, be sure to have all your documents in order. Things might be a bit too violent at the moment anyway so be sure to check all this out before heading off. It's best to stick to Bethlehem and avoid Hebron and the Gaza strip altogether.