The firecrackers, set off by an Orthodox Jewish man and two women inside the ancient basilica, caused a small fire.
Although the attack apparently was driven by personal distress and not extremism, it heightened religious and political tensions in the Holy Land.
According to witnesses, the three were disguised as Christian tourists when they entered the church compound shortly after sunset on Friday.
Israeli police said the main suspect, identified as Haim Eliyahu Havivi, 44, had been questioned in the past in connection with plans to attack Muslim religious places.
Police said Havivi had financial problems and apparently is not a Jewish extremist, the Associated Press reported. Havivi, his Christian wife, Violet, and their 20-year-old daughter were treated at a hospital before being taken into custody early on Saturday, the news agency said.
Friday's incident sparked protests by thousands of Nazareth's Christian and Muslim residents, who denounced what they called the government's lax treatment of Jewish extremists.
Police forces used stun grenades and tear gas to disperse protesters, some of whom reportedly fainted from gas inhalation.
Havivi, the main suspect, has been
questioned by police in the past
Ramez Jarayseh, the mayor of Nazareth and a Christian, called the violation a "nefarious crime against Christians around the world".
Speaking during a live interview with Aljazeera television on Friday night, he blamed the "racist culture in this country for making this attack inevitable".
Jarayseh said the incident would unite Palestinian Muslims and Christians whose holy places face danger from racist Jewish groups.
He added that the incident was reminiscent of the arson attack by an Australian Christian Zionist in 1969 against the al-Aqsa Mosque, in which much of the building's interior was gutted.
Attallah Hanna, one of Palestine's most prominent Christian leaders, said the incident showed that "we are being targeted by Jewish racism which seeks to uproot us from our land".
"I can tell you that those who targeted the mosques are now targeting the churches. Hence, we must be united because our common existence is being targeted by these racists."
"This racist mentality views us as a transient phenomenon in this land. They think we are going to vanish, to disappear"
Christian Palestinian leader
Hanna said there was hatred against non-Jews in Israel.
"This racist mentality views us as a transient phenomenon in this land. They think we are going to vanish, to disappear."
Palestinian Muslim leaders strongly condemned the attack, accusing extremist Jewish groups of targeting Christian as well as Muslim holy places.
Abdul Malik Dahamsheh, a Knesset member, accused the Israeli government of treating Jewish extremists leniently.
"The way the government of Israel deals with these racist thugs amounts to encouraging them to attack and burn mosques and churches in this land," Dahamsheh told Aljazeera.net
Protests broke out after
the incident at the church
"A government that desecrates mosques and decides to built a 'museum of tolerance' right on top of a Muslim cemetery can't be taken seriously when it claims it is serious about protecting the religious places of non-Jews in Israel," he said.
Dahamsheh was referring to Israeli plans to build a "museum of tolerance" over the Mamanu Allah cemetery in West Jerusalem.
Shaikh Muhammad Husain, a high-ranking Muslim Waqf (religious endowment) official in East Jerusalem, likened the incident at the church to the "recurrent attacks on the al-Aqsa Mosque.
"These violent fanatics are a product of a violent and perverted culture," he said
The incident has been likened to
attacks on the al-Aqsa mosque
"Just imagine if a Muslim or a Christian attacked a Jewish synagogue or if a Muslim country or a Christian country decided to build a mosque or a church right on top of a Jewish cemetery … imagine how Jews would react," he told Aljazeera.net.
Hamas, the Islamic Resistance Movement, also condemned the action, calling it a "racist crime".
Mahmoud al Ramahi, a Hamas lawmaker from Jerusalem, said "this is not the first of its kind and won't be the last. They attacked the church because they don't want to see non-Jews in this land."
The Israeli government denounced the incident, saying Israel was doing everything possible to protect the places of worship of all religions.
Israeli officials were unavailable for comment because of the onset of the Sabbath.
Israeli state-run radio said acting foreign minister Tzipi Livni assured the Vatican on Friday evening that Israel was doing everything possible to protect churches.