It is the #21 Arab bus leaving from near Damascus Gate. For 7 shekels, it's a slice of local life! It follows the western route down through Beit Jala and ends at the main Bethlehem junction (Bab Zaqaq). From there it's a 15-minute walk on to Manger Square. Coming out on the same bus, you will experience what Palestinians do: a stop at the checkpoint for a check of your papers (ID/passport); you may get a stern look from the Border Police, but probably no more.
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from the article: Tourist tip #229 / The little town of Bethlehem