At the time of Jesus' birth (concurrent with Herod roughly) do we know what Bethlehem was like? I've heard that it was a small village.
Below is a photo taken of Bethlehem c. early 1900. It is believed that the cluster of ruins to the right side of the photo was the ancient village which was abandoned after the Roman war and the village was eventually rebuilt on the southeastern tip of the ridge (to the left of the ruins).
This photo has particular archaelogical interest because of what appears to be the ruins of a tower which affords the shepherd a view of the valley which has traditionally been identified as the "Shepherd's Field," where the Temple flock was kept, the flocks of sheep and other animals that were intended for sacrifice in Jerusalem, five miles north of Bethlehem. It is important to realize that during the time of Jesus, there were thousands of animals sacrificed at Jerusalem every year, and Josephus records that as many as a quarter million lambs were offered each Passover alone. Animals for the temple cultus was the primary import commodity of 1st century Israel. The "shepherds field" was actually more of a stockyard type operation than it was a typical sheepfold and would require consierable space for so many animals to be kept until they could be inspected by specially trained priests for any signs of a blemish, a wound, sore, scar, disfigurement, or any signs of infestation such as lice, worms, or nits that would disqualify the animal from sacrificial use.
But what is also important is that textual evidence indicates that at one time there was a royal castle at Bethlehem, the ancestral home of King David. By the time of Jesus the ancient castle was already a ruin, but other textual evidence indicates that one of the ancient watchtowers of the castle had been maintained and was used by the shepherds as a watchtower for the Temple flock as it afforded a clear view out over the broad, flat valley east of Bethlehem that is historically identified as the "shepherd's field."
This is of special interest because Rabbinic tradition interprets the passage in Micah (4:8) about the "Migdal Eder" (Watchtower of the flock) as being the place from which the coming of the kingdom would be announced. The photo shows what appears to be the foundation of an ancient watchtower overlooking the valley.
In the past century however, and particularly the past half century, tourism has caused the once quaint village of Bethlehem to grow into a small city, and with that expansion many ancient ruins were demolished and the stones used for new building projects. The hill from which the above photo was taken and where this ruin was located is now fully developed and there is no aerial sign of any ancient ruins left. The area is now covered by new construction. Many valuable ruins have been lost in recent decades, victims to urban sprawl.
Below is a photo of Bethlehem as it appears today, covering a much larger area than it did even 100 years ago.
You can see that the hill from which the photo was taken is now developed and covered with new construction. The valley where the Shepherd's Field was located was also the valley where Boaz met Ruth when she was gleaning his fields, and also where David once watched over his father's sheep. The village of Bethlehem was a strategic location in that the main road leading from Palestine to Egypt passed by Bethlehem, and an ancient caravansary was located somewhere on the main road. It is believed that this was the "inn" at which Joseph inquired for lodging but it was full so they were shown to a series of caves at what was once the edge of the village which is today marked by the Church of the Nativity.
It is estimated that at the time of Jesus Bethlehem was still a village even though an important one in that it was the location where all the animals intended for sacrifice were kept until needed and then driven the five miles up to Jerusalem.
Lying half way between Bethlehem and Jerusalem was a large royal palace complex that dates back to the days of Hezekiah that was still in use in the time of Jesus but was completely destroyed by the Romans during the war, along with many other historic and politically important sites throughout the Holy Land.
Hope this might provide you some idea as to the historical character of the birthplace of Jesus.
In Christ,
Pilgrimer