The city of Nazareth is sort of the opposite of the city of Troy. The city of Troy is a city that was once considered legendary but was eventually proven to have been real. The city of Nazareth has for a long time been considered to have always been real but was actually probably originally nothing but a myth.
There is, of course, in present day Israel, a city of Nazareth. However, there is good reason to think that the Nazareth mentioned in the Bible never existed and was only founded later by Christians.
There are no historical references to a town named Nazareth until 200 AD. Nazareth is not included in the 45 cities of the Galilee that are mentioned by Josephus the historian and its name is missing from the 63 towns of Galilee mentioned in the Talmud.
The idea that Jesus grew up in a place named Nazareth probably started with the gospel of Matthew. Matthew makes the following statement in Matt 2:23:
And he came and dwelt in a city
called Nazareth: that it might be
fulfilled which was spoken by the
prophets, He shall be called a Nazarene.
As far as I can tell, Matthew was completely incompetent when it came to understanding the Old Testament. Matthew had a habit of taking sections of the Old Testament completely out of context and declaring them to be "prophecies" regarding Jesus. This verse is one of the most ridiculous of his supposed "prophecies" because there is nothing like this in the Old Testament.
The closest thing anybody has been able to find in the Old Testament is a prophecy concerning Sampson, (the guy with magical strength and long hair). Judges 13:5 says of Samson "the child shall be a Nazirite."
It appears that Matthew decided to take a prophecy regarding Sampson and pretend it was talking about Jesus. You can tell that this was probably the Old Testament passage that Matthew was referring to by the fact that everybody believes Jesus had long hair.
Most Christians today believe that Jesus had long hair because he grew up in Nazareth where no one cut their hair. Unfortunately, there is no record of any cities in Galilee that had a tradition of men not cutting their hair. However, there WAS a sect of Jewish mystics called Nazarites that swore a vow not to cut their hair. The vows of the Nazarites are mentioned in Numbers 6:1–21. So, it appears that Matthew, and all Christians since him have been confusing the religious sect of Nazarites with the supposed inhabitants of some imaginary city name Nazareth.
It would be quite a coincidence if there just happened to be a town named Nazareth where no one cut there hair, AND a religious sect named the Nazarites who never cut their hair. The fact of the matter is that there was no such coincidence, Matthew was just completely incompetent at understanding the Old Testament. He probably was a speaker of Greek who could barely read Hebrew and was just picking stuff out almost at random and trying to make it look like it somehow was a prophecy making Jesus look like a "predicted messiah". When you take a close look at Matthew's supposed prophecies they really begin to appear to be the work of someone pathetically grasping at straws in an attempt to convince Jews that their religion predicted the birth of someone like Jesus.
An example of this horrible abuse of the Old Testament is found in Matt 1:23:
“Behold, the virgin shall conceive and bear a son, and they shall call his name Immanuel” (which means, God with us).
This is taken from Isaiah 7:14. However, if you look at the prophecy in context, you will see that the same prophecy declared that there would be an invasion of bees and flies and that everyone in Israel would get their entire bodies shaved by the King of Assyria. Obviously, there is no record of such a event during the time of Jesus. Conveniently enough, Matthew just decided to forget about the rest of the prophecy when he used the part about the virgin birth. Moreover, Matthew seems to have confused the Hebrew term for "young girl" with the word "virgin".
It seems quite likely that early Christians were frustrated when they found they were unable to locate the Nazareth that Matthew had made up. The Christians, unable to find a Nazareth, appear to have created one. They either started a new village and called it Nazareth or they invaded some pre-existing village in the area and started calling it Nazareth. Given the obvious confusion between the Nazarite sect and a village of Nazareth, and the sudden appearance of a Nazareth about 200 years after the time of Jesus, this is the most probable explanation.