Okay, I do tend to label things that are not breathing (Light and Dark) as characters, but if you look past a small group of mud houses there is much to warrant Bethlehem’s inclusion as a character and not just a setting.  Go past the town to see Judah- the land and family.  Judah as a tribe is singled out by Jacob to be the ruler of his brothers in Genesis 49: 8-12.  Moses continues that thought in Deuteronomy 33: 7. (The inheritance of the tribe of Simeon is completely inside that of Judah.)  The first mention of Bethlehem is connected to the burial of Rachel after the birth of Benjamin – Genesis 35 + 48.

Bethlehem is mentioned in twelve Old Testament books and three in the New Testament.  It is used 52 times in the NIV – 44 (OT) and 8 (NT).  It is part of three stories in Judges – Chapters 12, 17, 19.  It is central in the story of Ruth and thus becomes the birthplace of King David.  

The prophet Micah (5: 2) delivers the message that ties Bethlehem to Christmas and that verse is used in Matthew 2 by the priest to direct the Wise Men.  That chapter is very prophetic, take some time and read it.  Micah did write this word of hope during a troubled time in Israel.

The song “O Little Town of Bethlehem” is a real Gospel praise song if you will read all four of its verses. The link below was a good site – history, quizzes, other carols.

I would like to treat Bethlehem, now as Joseph/the Tribe of Judah.  (Please bear with this strange study method.)  If we compare and contrast Joseph with Bethlehem and Judah/Israel/religion there are several things worth noting.

• Judah had lost its prophetic position as a ruler. (True, King Jesus was coming, but Herod had questionable Jewish heritage; Rome was in charge; the Chief Priest may have been controlling things outside the Temple).  Zerubbabel (governor in Haggai and Zechariah), a type and ancestor of Jesus, may have been the last powerful governor in Judah. 
• Bethlehem had no room except a stable, Joseph was going to put Mary away, Jerusalem was troubled when they found out about Jesus. Jesus was not welcomed!
• An angel had to appear to Joseph to change his mind, angels appeared to shepherds to change the mind of Bethlehem to welcome the Family.  Jerusalem, not sure it ever changed its mind.

Other thoughts about the Christmas story:

• We honor Mary because she was blessed and God did great things for her (Luke 1: 48, 49). But I wonder who God picked first – Joseph or Mary?  Father God tends to start with the man and then add the women to complete the work.  Even though the women may be introduced first in the story and is the central character who is considered first?  Okay to answer my own question – it seems the couples are paired to complement each other. Ruth is a role model but Boaz was the only one in the family willing to marry her!  Mary was the willing vessel but Joseph was needed to care for and protect her and Jesus.
• Considering travel and Mary’s condition after childbirth the circumcision of Jesus probably occurred at Bethlehem.  Then on the way back to Nazareth, they went to Jerusalem for the dedication of Jesus at the end of the forty days.  (The rule here is in Exodus 13, Numbers 8 and 18, the time was set in Leviticus 12: 8.) The other possibility is they stayed in Bethlehem for two years but that means Joseph still had a house and business in Nazareth.
• When Herod searched for the baby Jesus I would have no doubt that Bethlehem would have given up the Family once they learned who the soldiers were looking for.  The shepherds and the possibility of the thirty to forty-day stay would have been mentioned to try and save their sons. It would also make sense that the “records” were searched and the death squad went to Nazareth. Herod was not just mean but crazy and jealous of his power.
• Jeremiah 31 does not mention Bethlehem weeping for the children.  He prophesied Ramah and Rachel (yes, she was buried near there) which could extend the murders well past Bethlehem.  Rachel’s family was Ephraim, Manasseh, and Benjamin.  She was also the “loved” wife which could bring another level into this thought. 
• I know that Joseph taking the Family to Egypt was necessary.  So, I am glad he was not like Simon Peter in his early days.  With all of the hype from the shepherds, they could have started a revolution.  That would not have been good for the Prince of Peace!

FURTHER THOUGHT – Compare Joseph (in Matthew and Luke) to Joseph in Genesis.

https://www.carols.org.uk/o_little_town_of_bethlehem.htm  a nice website covering Christmas carols