It was originally set up by the Arab's Women Union (AWU) in 1948, under Julia Dabdoub, as a center for Palestinian refugees fleeing their villages to eat, and practice in traditional embroidery for income. The AWU established the museum in 1979. It consists of two houses of typical Palestinian architecture, which include a renovated kitchen, a diwan room, a bedroom and an upper floor or illeyeh. The contents of the museum included a collection of traditional Palestinian household items displayed in an old house. The amount of items increased after a campaign amongst Bethlehem's prominent families to donate their traditional belongings commenced. Many items were thus saved from withering away in the basements of homes.
In 1984, the museum was expanaded to include an adjacent old house which had been restored. This new house, according Julia Dabdoub, "is one of the few authentic old houses left in Bethlehem… similar to the house in which Jesus was born."In 1992, Dabdoub donated her forty year collection of photographs, furniture, and works of art to furnish the upper room or "al-Illiyeh" which shows the life of Bethlehem residents between 1900 and1932..
Although Baituna al-Talhami is run as a museum, it still serves and employs refugees, as well as host festivals celebrating Palestinian artists, poets and writers.
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