It has been returned nearly 1,400 years after it was sent to Rome as a gift to the pope.
The thumb-sized relic was unveiled to worshippers at the Notre Dame church in Jerusalem for a day of celebration and prayer.
On Saturday, it will be sent to its permanent home at the Franciscan Church of St Catherine, next to the Church of the Nativity in Bethlehem, the West Bank holy site where tradition says Jesus was born.
Its arrival will coincide with Advent, a four-week period leading up to Christmas.
Christian tradition holds that Joseph and Mary travelled to Bethlehem to register for the Roman census and found no room at the inn, forcing her to give birth to Jesus in a manger where animals were held.
A wooden structure that Christians believe was part of the manger was sent by St Sophronius, the patriarch of Jerusalem, to Pope Theodore I in the 640s, around the time of the Muslim conquest of the Holy Land.
Yisca Harani, an Israeli expert on Christianity, said many relics were relocated from the Holy Land in the Middle Ages as Rome and other cities were establishing themselves as centres of Christian life and pilgrimage.
A relic from the manger would have been particularly useful for dispelling heresies holding that Jesus was more of a spiritual than a physical being.
She said the return of such an important item "is definitely a statement saying the Vatican and the Holy Land are together".
On Friday, around 50 worshippers attended a special Mass with the relic on display.
The tiny piece of wood was preserved in an ornate silver cross displayed next to the altar.
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