The whole tradition starts with the Maccabean wars. Now, don't expect the story to be historically accurate - it is a tradition, and there are details which are untrue.

Israel was under Helenic rule and influence. Actually, the rulers were not strictly Greek, but Seleucids from Syria. The ruler at the time was called Antiochus Epiaphanes. He made some decrees that oppressed the Jews, forbidding circumcision, and requiring the Jews to bow to the Greek Gods. If I remember correctly, he was also accused of bringing a statue of Zeus into the Temple at Jerusalem. The city Jews were sort of Hellenized - absorbed a lot of the Hellenic traditions and didn't mind so much about Zeus or about the Gymnasium being built in Jerusalem (featuring, of course, naked young men who were not engaged in the work of God). Country Jews felt really shocked at this "Hellenization" of the Jews. And the decrees of Antiochos were the last straw.

Eventually, Mathathias of the House of Hashmonai, a low-level priest family, decided to revolt. Called "all who are God's people, come to me", slayed a Hellenized Jew, and started a guerilla war against the Hellenic oppressors. That war is actually very interesting historically. The bottom line is that it has succeeded. Mathathias, who was an old man, was assited by his five sons, among whom the leader was Judas Maccabeus. Under his leadership eventually the Seleucids were driven out of Jerusalem. There are lots of stories here, with the Seleucids using elephants, and the Maccabeans basically using short swords and guerilla tactics.

Anyway, at the day the Temple was freed, it was found to be violated and unclean. It needed to be re-consecrated. The Menorah (lamp of the seven branches) had to be re-kindled. For this, new, pure olive oil had to be made, as all the jars of oil were broken by the Hellenists. This process required 8 days. The Maccabeans roamed around, and found only one small jar unbroken, with oil only for one day. Having no other choice, they used this to light the Menorah. And miraculously, that oil kept on burning and burning for eight days until new oil was made. Hanukkah is a festival that celebrates the miracle of the oil jar, as well as the victory of the Maccabeans, and the downfall of the oppressors.

Most of the Hanukkah traditions involve oil. The main requirement is to light candles each day of the festival. One candle is used as the lighting agent, so it is not counted, but placed to one side. On the first day, one candle is lit. On the second, two. On the third, three, and so on - until the whole Hanukkiyah is full. The hanukkiyah itself is symbolic for the original Menorah, although it has 8 branches and a place for the lighting agent ("shamash"), rather than one main stem and six branches, as the original had.

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Menorah

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Hanukkiyah

Very religious people actually light oil candles. That is, their Hanukkiyah has eight miniature oil lamps where they put pure olive oil for lighting. Two blessings are said over the candles. On the first day, there is also a third one. And then there are traditional hymns and songs.

Hanukkah foods are mostly fried in oil: donuts, pancakes and the like.

Other traditions of the festival: children play with dreidles ("sevivon"), which are basically spinning tops with four sides, on which there are the initial letters of "(A) great miracle happened here" - when they are played in Israel, or "(A) great miracle happened there" - when they are played abroad.

It is traditional to give children some money on Hanukkah - giving them money on other occasions was frowned upon. Today some parents give chocolate coins instead.

In Israel, there are lots of Hanukkah songs - it's the festival that has the highest number of children's songs. Here is the translation of one:

We have come to banish the darkness
In our hands we have light and fire
Each one is a small light
And together we are a mighty light
Go away, darkness, off with the blackness
Stand aside from the light!

Hanukkah is also known as "The festival of lights".

Oh, and Hanukkah is not a holidy. Schoolchildren in Israel do get a holiday at that time, but it's not a state holiday nor a religious rest.

The candles are lit on the evening before each day of the holiday. That is, today in the evening is three candles - but today is only the second day of the holiday.

It is forbidden to make use of the light of the Hanukkiyah - read by it or use it to light your way. This is because this light serves as witness to the miracle.