The festival commemorates a victory by outnumbered Jewish forces over an ancient Syrian occupier and rededication of the despoiled Jewish Temple in Jerusalem. The longest Jewish festival, it also recalls the traditional belief that a single container of ritually pure oil burned in the Temple's candelabrum for eight days, setting the length of the holiday.
Observing the holiday, Jews light candles in a candelabrum with eight branches, called a menorah. A ninth branch contains a candle used to light the other eight. Each day, after sundown, another candle is added.
Hanukkah is one of the most popular holidays on the Jewish calendar among Israelis. Though only a quarter of Israel's Jews define themselves as religiously observant, studies show that in about 90 percent of Jewish homes, Hanukkah candles are lit.
Much of the popularity comes from the trappings of the festival - giving presents to family members and eating calorie-rich treats.
On a rainy day in Jerusalem's bustling outdoor market, shoppers sidestepped puddles to cluster around bakery stalls displaying trays of powdered sugar-covered jelly and caramel-filled doughnuts - a Hanukkah favorite.
Faith Segal, 42, who immigrated to Israel from Chicago, was among those jostling at the market to buy doughnuts for her family.
``Hanukkah is about that tiny little light. We are a small people in this world and it is a tiny light that has led us,'' Segal said.
Gilo has been plagued by repeated nighttime shooting attacks by Palestinian gunmen firing from the rooftops of neighboring Beit Jalla, a mainly Christian village on the outskirts of Bethlehem. Israeli forces have returned fire in gunbattles that have raged for hours.
Israelis consider Gilo an integral part of Jerusalem. Palestinians call it a settlement built on land won by Israel in the 1967 Middle East war.
``It's been a hard few months but this is such a special holiday,'' said Chava Sack, who owns a shop that sells light fixtures and candles. ``It's nice to have light, and we do need miracles.''
Nearly 40 Israeli Jews have died in the ongoing violence with Palestinians, which began back in September as another Jewish holiday -- Rosh Hashanah, the Jewish new year -- was being celebrated.
More than 300 Palestinians have died in the clashes, which both sides blame on the other.
As Hanukkah began, Israeli and Palestinian negotiators continued talks in Washington aimed at ending the deadly fighting and arriving at a lasting peace agreement.