According to historical accounts, the tradition of using lanterns as a decoration in Ramadan originated during the Fatimid Caliphate, primarily centered in Egypt, where Caliph Al-Muez Li-Din Allah was greeted by people carrying lanterns to celebrate his rule.
From that time, lanterns were used to light mosques, houses and streets throughout the capital city of Cairo, with people’s homes adorned with stars and crescents, along with colours, during the Islamic holy month.
View at the source: http://english.ahram.org.eg/NewsContentMulti/105017/Multimedia.aspx
Ismailimail 