This is one of the few preserved sections of a sealed "inverted siphon" that is located on the western side of Bethlehem. This is a sealed siphon so that water flows from a higher point on the south of Bethlehem, down into this depression, and the up to a higher elevation. This section is part of the Upper Level Aqueduct that flowed from the Wadi Biyar to the upper pool of Solomon's Pools and from there to Herod the Great's Palace near what is now Jaffa Gate in the Old City of Jerusalem.
It is composed of individual stone blocks that are carved out and then are joined with a "collar sleeve" arrangement.
See the following image for details.