This is an easy, child-friendly craft made out of scrap cloth, glue, art paper and toilet paper rolls!  (sample was made by children from He Cares foundation)

Materials:
Scrap cloth
Flesh & brown/ orange colored paper
Rubber band
Glue
Scissors
Toilet paper rolls
Black Pen

General Instructions:

1. Cut 2 pcs of 1.5" diameter circles out of the flesh colored paper.  Cut out 1.25" diameter circle for the face of baby Jesus.
2. Draw faces of Joseph, Mary and Jesus on the circles with a bit of hair on the edges.
3. Make 1 of the toilet paper rolls shorter than the other by folder a portion of the cylinder inwards.
4. Cover the toilet paper rolls with scrap cloth.
5. Paste faces onto the 2 cloth covered cylinders, making sure the glue isn't too much so that it seeps through.
6. Cover the "head" with more scrap cloth to make like a veil or turban.
7. Make an 3" x 4" oval with the brown paper to make the hay.  You can also use cloth for this.
8. Cut out a smaller oval made of scrap cloth for the figure of baby Jesus.
9. Paste the face of baby Jesus onto the smaller cloth oval and paste on top of the "hay".  You're done! 
10. You can cut a paper star to serve as a doily for the holy family.
11. A "surprising" way to present this to children is to narrate the Nativity story while the baby Jesus is tucked inside the Mother Mary cylinder until it's time for him to come out.

Another Option: You may purchase our do-it-yourself Nativity Kit click here