A source close to Teresa, 43, tells PEOPLE that the Real Housewives of New Jersey star spent Christmas Eve at her brother Joe Gorga's home, where his wife, Melissa Gorga, made a traditional Italian meal.
"It was a nice evening, they kept it small with just the the Gorgas and the Giudices," says the source. "[They] wanted it to be a quiet celebration for family. Melissa cooked a traditional Italian Christmas Eve meal of seven fishes."
While the Gorgas and Giudices have had their fair share of tension throughout the years, it appears that Teresa's return home has brought about a more peaceful mood for the family.
"It was the first time Melissa and Teresa have seen each other in over a year," adds the source. "The holiday spirit was definitely in the air. Everyone got along well, exchanged gifts. Very happy night."
The evening – which was documented by the Bravo cameras and featured a visit from carolers – apparently also featured a special meeting between Teresa and Melissa.
"Melissa and Teresa had a lot to discuss but both wanted to figure out how they can truly make it work," says the source.
Melissa, 36, had previously told PEOPLE Now that she was looking forward to spending the holidays with Teresa and Joe Giudice.
"I think it's gonna be a really nice Christmas this year," she said. "I just think it's gonna be a lot of new beginnings, hopefully just a fresh start, especially for [Teresa]."
On Wednesday, Teresa had an emotional return home after spending nearly 12 months in a federal prison in Danbury, Connecticut, for after pleading guilty to fraud alongside her husband, who was sentenced to 41 months in prison.