Evangelicals have been understandably wary of historical criticism of the Bible. The method appears to attack a traditional understanding of Scripture with relish, stainless steel scalpels flashing as it performs a post-mortem and suggests that most of the stories found therein ain't necessarily so. The most famous name in Old Testament scholarship, of course, is Julius Wellhausen, who helped to refine the Documentary Hypothesis that most scholars ascribe to: according to him, the diverse traditions that make up the Pentateuch were not written by Moses but were brought together hundreds of years after the events themselves, making things like the patriarchal narratives and the Exodus largely legendary accretions around unrecoverable historical kernels. 'QED,' many unbelievers have cried. 'The Bible is full of fairy-tales.'
Christian and Jewish believers have responded in different ways. Some, like Eugene Merrill, push back against the majority position, seeking to defend the historiography of the Old Testament as 'real-time' accounts of events that happened more-or-less exactly as described. His book Kingdom of Priests is a good example of this approach. Others, such as the famous Gerhard von Rad, accepted the basic approach Wellhausen took, seeing the events portrayed in the Pentateuch as heavily theologised traditions shaped by historical experience over several centuries. But von Rad believed that God had inspired this development of tradition, even though this resulted in a great distance between historie, 'what actually happened', and heilsgeschichte, the theological truth of that event, interpreted and re-interpreted beyond the bare historical facts. Thus, theology could be done regardless of how historically accurate or factual the events described are.
Von Rad's approach is bound to make believers feel wary. What are we basing our faith on, if the events portrayed in the Bible 'didn't really happen'? If the patriarchal narratives have been sewn together, perhaps, from an assortment of older, individual cult legends, why should we trust the accounts of Jesus' life, death and resurrection? Bultmann's shadow looms large.
What I would like to suggest is a theological starting point for how a believer in the divine inspiration of Scripture can approach historical criticism of the Bible. It's very simple, really: what kind of sources has God Himself explicitly indicated that the human authors of Scripture have used?
Let's consider that Pentateuch. Genesis 12:6 is suggestive that the book did not reach its final form until centuries after the events portrayed. There are good reasons to believe that Moses did not author the majority of the Pentateuch, as outlined by Mike Heiser here, here and here. Now, I'm not disturbed by these conclusions, since the Bible itself never makes the claim that Moses wrote all the Pentateuch. It talks of 'the law of Moses,' yes, but as Dr Heiser demonstrates, that phrase didn't necessarily mean that Moses wrote it all. Therefore, because God hasn't specified that the Pentateuch is composed of eyewitness accounts, I'm quite open to the possibility that it is formed from diverse traditions found in the sources referenced therein, like 'The Book of Jashar' and 'The Book of the Wars of the LORD' - some of which may indeed be legendary. A lot of evangelicals are now open to the idea that Genesis 1-3 speaks deep truth about the origins of the world and of mankind, even if it isn't like a transcript of a video recording. Similarly, if the pentateuchal narratives are of a genre more akin to the opening ceremony of the 2012 Olympics than a fly-on-the-wall documentary, do they still speak deep truth about God's purposes for Israel, purposes He set in motion through the nation's distant ancestors, rooted in historical events but refracted over the centuries? I don't see why not. (Some of the best reflections on this sort of historiography can be found on John Hobbins's blog: he discusses the patriarchal narratives here, Moses here and Joshua here.)
Even the later historical works are not free of ideologically-driven interpretation (no history is, of course). More sources - various annalistic works which held more information - are cited, and more archaeological support is available, but the redactor of 1&2 Samuel put his work together a long time after David's reign. The differences in perspective between 1&2 Kings and 1&2 Chronicles are demonstrative: although based on real events, we must never forget that the authors of these books are theologically interpreting them, too, writing dialogue for their traditions that are unlikely to have been recorded at the time for later transcription. Again, if God's comfortable with that, then I can't really complain. I trust that those interpretations correctly capture different aspects of His work in history, and the essential truth about what was going on.
Things change when we get to the New Testament. For here we have direct claims to rather different sources of evidence: 'Since many have undertaken to set down an orderly account of the events that have been fulfilled among us, just as they were handed on to us by those who from the beginning were eyewitnesses and servants of the word, I too decided, after investigating everything carefully from the very first, to write an orderly account for you, most excellent Theophilus' (Luke 1:1-3). 'He who saw this has testified so that you also may believe. His testimony is true, and he knows that he tells the truth' (John 19:35). God calls us to believe that the gospels are based on eyewitness testimony: selected and paraphrased, yes, and no doubt theologically expounded upon (particularly in the case of John's gospel), but describing events that happened as reported: the virgin conception, the miracles, the resurrection. In this way, the transfiguration actually acts as a guarantee that Moses and Elijah were historical people who God used, however the traditions about them developed. There is still a theological interpretation of these events, of course: we need to be informed by the NT that Jesus was bodily resurrected so we don't think he was a ghost or a hallucination, but the type of evidence claimed for the event forbids us from interpreting it as legendary. It is not God's intent for these particular events to be understood that way, as I believe He has left the door open for some of the events in the the Pentateuch.
What this means is that Christians can have a certain amount of freedom in approaching the study of the Bible: we do not need to be on the defensive all the time, scared by the possibility that there is legendary material in our Scriptures. I am not, of course, averse to Merrill's view of the Old Testament: if the Noah's ark is dredged up one day, I certainly wouldn't complain! But I feel no need to cling to a 'maximalist' view of OT history, since I see no reason why God couldn't have overseen the development of scripture in the way proponents of the Documentary Hypothesis suggest. My claim for the Gospels is, of course, theological and beyond historical verification. It will not please non-Christian NT scholars, but I'm not too concerned about that. All I want to do, and what I want all Christians to be able to do, is to trust that God has made clear how He wants us to see the various parts of Scripture, and to not fear academic study of the Bible that may make clearer how God has inspired certain parts of the Bible. In light of the love that is able to cast out all fear, I believe that this is something we do not need to be afraid of.