History
The earliest accounts for the observance of Mawlid can be found in eighth-century Mecca, when the house in which Muhammad was born was transformed into a place of prayer by Al-Khayzuran (mother of Harun al-Rashid, the fifth and most famous Abbasid caliph).Public celebrations of the birth of Muhammad did not occur until four centuries after his death. It was originally a festival of the Shia ruling class, not attended by the common people, with the first official Mawlid celebrations occurring in Egypt towards the end of the eleventh century. The Fatimids, who were descendants of Muhammad through his daughter Fatimah.The early celebrations included elements of Christian and Sufic influence, with animal sacrifices and torchlight processions along with public sermons and a feast.The celebrations occurred during the day, in contrast to modern day observances, with the Fatimid ruler playing a key role in the ceremonies. Emphasis was given to the Ahl al-Bayt with presentation of sermons and recitations of the Qur'an. The event also featured the award of gifts to officials in order to bolster support for the ruling caliph.
The first public celebrations by Sunnis took place in twelfth-century Syria, under the rule of Nur ad-Din. Though there is no firm evidence to indicate the reason for the adoption of the Shi'ite festival by the Sunnis, some theorise the celebrations took hold to counter Christian influence in places such as Spain and Morocco. The practice was briefly halted by the Ayoubides when they came to power, and it became an event confined to family circles It regained status as an official event again in 1207 when it was re-introduced by Muzaffar ad-din, the brother-in-law of Saladin, in Arbil, a town near Mosul, Iraq.
The practice spread throughout the Muslim world, assimilating local customs, to places such as Cairo, where folklore and Sufic practices greatly influenced the celebrations. By 1588 it had spread to the court of Murad III, Sultan of the Ottoman empire.In 1910, it was given official status as a national festival throughout the Ottoman empire. Today it is an official holiday in many parts of the world!
Source: http://en.wikipedia.org/wiki/Mawlid