Tensions in the city, the hometown of Jesus and a destination for hundreds of thousands of tourists each year, have risen sharply in recent months after the Israeli government unveiled plans to encourage Christian school leavers to serve in the military.
Although Nazareth and its surrounding villages are home to the bulk of the 130,000 Palestinian Christians with Israeli nationality, the city itself has a Muslim majority.
The local leadership has accused the government of Benjamin Netanyahu of pursuing a "colonial policy of divide and rule" towards the country's 1.5 million Palestinian citizens, who comprise one-fifth of the population. "Netanyahu is playing a very dangerous game, seeking to inflame tensions so that he can pit Christians against Muslims and weaken us as a community," said Hanna Swaid, a Christian representative in the Israeli parliament, the Knesset.
Swaid said the Israeli government was playing on fears sparked by the deteriorating situation for Christians in neighbouring states, especially in Syria and Egypt. About one-tenth of the Palestinians in Israel are Christian.
Christians in the military?
Of chief concern to Swaid and other community leaders is a plan announced last year by Netanyahu to end the exemption for Christians on serving in the military.
Swaid said: "The implication from Netanyahu is that he supports the establishment of Christian militias. He is trying to sell this to Christians with the idea that Israel will arm and train you to defend yourself against your Muslim neighbours."
In a related move this month, it emerged that Yariv Levin, chair of Netanyahu's governing coalition, had proposed a new classification of "Christian" on identity cards. That would effectively create a special Christian nationality, leaving only Muslims to be identified as "Arabs." Levin has said he sees the move as a prelude to creating a special education system for Christians separate from the current Arab one.
Meanwhile, a small group of Christians in Nazareth allied with the government, and led by an Orthodox priest, has declared its intention to build a 30-metre-high statue of Jesus on a hill overlooking the city, in an effort to create an Israeli version of Rio de Janiero's imposing figure of Christ the Redeemer.
Threatening to further strain relations is a recent agreement by the government to establish a branch of a US university in Nazareth, using funds raised by Christian Zionists. Their leader, John Hagee, who is known to be close to Netanyahu, has been a longtime financial supporter of settlements in the occupied territories.
Finally, Nazareth is still reeling from a mayoral contest in October in which the two front runners were separated by a handful of votes. Although Ramez Jeraisy, a Christian and the mayor for the past two decades, and his Muslim challenger Ali Salam represent non-sectarian parties, the highly contested result has exacerbated tensions.
Jeraisy is receiving police protection after gunshots were fired at his house last week. A short time later a Nazareth youth was arrested for incitement after posting a cartoon of Jeraisy being shot dead.
The sensitive relations between the two religious communities in Nazareth are in part a legacy of the 1948 war that established Israel. As the advancing Israeli army expelled Palestinians from villages in the Galilee, some refugees fled to Nazareth seeking sanctuary. The influx of Muslims permanently altered the demographic balance of the city.