Around 500 Indians who took part in the procession were Christian tourists from various parts of the country.
"The scenes from various parts of the Middle East during the last few months have been very worrisome, so we decided to gather in this Holy city to pray to God to bring peace in the region on Christmas," Father Sleeba Katpumangappu from Kerala said as he led the march on Saturday night.
"There was a very enthusiastic response to the idea of holding such a peace march among the Indian pilgrims and they responded to the call on a very short notice," Jose Liba of the Scopus World Travel, which helped bring the Indian pilgrims to Bethlehem, said.
"It is my first visit to this blessed land. The fact that I have been able to participate in a worthy cause during pilgrimage is a very good feeling," said Abraham, an Indian tourist from Kerala.
Meanwhile, pilgrims from Tamil Nadu and Kerala held a prayer meeting in this holy city for an amicable settlement of the Mullaperiyar Dam row.
"The issue has divided the populations of the two states causing a major concern. More importantly the rumours flying all around have led to a lot of ill feeling between us which ultimately affects the unity of India," Shaheen Kuruvilla from Kottayam said.
The tourist said the Mullaperiyar dam row has the potential of turning into a major crisis leading to a volatile situation which can threaten peace in south India.
"I hope that good sense prevails on the leadership of both the states and they are not driven by narrow personal interests, but the interest of humanity and India," said Muthuswamy from Chennai.
Most of the participants expressed hope that the festive season marking the birth of Jesus would bring in divine intervention leading to peaceful settlement of the dispute before the beginning of the new year.
Undeterred by political chaos surrounding the region, the economic downslide and an inclement weather, record number of tourists have thronged the West Bank city of Bethlehem this year.
Palestinian officials said the overall turnout for the celebrations in Bethlehem this year is around 120,000, about 30 per cent higher than last year.