From 1517, during the years of Ottoman control, custody of the Basilica was bitterly disputed between the Catholic and Greek Orthodox churches. By the end of the 16th century, Bethelem had become one of the largest villages in the District of Jerusalem, and was subdivided into seven quarters. The Basbus family served as the heads of Bethlehem among other leaders during this period.

Bethlehem paid taxes on wheat, barley, and grapes. The Muslims and Christians were organized into separate communities, each having its own leader; five leaders represented the village in the mid-16th century, three of whom were Muslims. Ottoman tax records suggest that the Christian population was slightly more prosperous or grew more grain as opposed to grapes, the former being a more valuable commodity.

From 1831 to 1841, Palestine was under the rule Muhammad Ali Dynasty of Egypt. During this period, the town suffered an earthquake as well as the destruction of the Muslim quarter in 1834 by Egyptian troops, apparently as a reprisal for the murder of a favored loyalist of Ibrahim Pasha.  In 1841, Bethlehem came under Ottoman rule once more and remained so until the end of World War I. Under the Ottomans, Bethlehem's inhabitants faced unemployment, compulsory military service and heavy taxes, resulting in mass emigration particularly to South America. An American missionary in the 1850s reports a population of under 4,000, 'nearly all of them belong to the Greek Church.' He also comments that 'there is a fatal lack of water' and hence it could never become a large town.

Source: http://en.wikipedia.org/wiki/Bethlehem