Reapproaching this from an academic perspective 📜
Academics generally think of it as fiction meant to support Matthew’s idea of Jesus as the new Moses.
Here’s the relevant quote from Brown’s chapter on ‘Pre-Matthean Material’ in his Birth of the Messiah, where he listed exhaustive parallels between Matthew’s birth narrative of Jesus and the Exodus birth story about Moses:
Matt 2:16 Herod sent to Bethlehem and massacred all the boys of two years of age and under.
Exod 1:22 The Pharaoh commanded that every male born to the Hebrews be cast into the Nile. (p. 113).
There is no corroboration outside the Gospel of Matthew for Herod slaughtering babies at Bethlehem or anywhere else. The sources say plenty of bad things about Herod and he did kill some of his own sons. Josephus had no love for the guy and names a lot of atrocities. Josephus also had access to Herod’s own official records, including a journal kept by his closest advisor, Nicholas of Damascas and there is simply nothing like that even though there are several episodes of Herod committing mass violence.

Of course, there are also a number of other patently mythological elements – angels, the Magi following a magic star that stops over a house, etc.

The standard academic theory is that the slaughter of innocents story is intended to reiterate the infancy narrative of Moses and the slaughter of babies by the Pharaoh. See especially Raymond Brown’s Birth of the Messiah, which is a seminal work on the Nativity narratives.
To be fair, Bethlehem is only about five or six miles from Jerusalem. The bigger problem is that according to the Israeli Antiquities Authority, there is no archaeological evidence that Bethlehem was even inhabited in the 1st Century.
But while Luke and Matthew describe Bethlehem in Judea as the birthplace of Jesus, “Menorah,” the vast database of the Israel Antiquities Authority (IAA), describes Bethlehem as an “ancient site” with Iron Age material and the fourth-century Church of the Nativity and associated Byzantine and medieval buildings. But there is a complete absence of information for antiquities from the Herodian period–that is, from the time around the birth of Jesus.

Avram Oshri of the IAA https://archive.archaeology.org/0511/abstracts/jesus.html
Also see Dale Allison, The New Moses: A Matthean Typology. The slaughter of the innocents is only one of many parallels. I don’t think Matthew intended this to be history. He is framing Jesus story this way to tell you Jesus is the new law giver, the new Moses. Roughly speaking, Jesus in Matthew is nearly killed by a king, he like Moses escapes to Egypt. He returns to Israel by crossing the Jordan. He is tempted in the desert, which unlike the Israelites in Exodus does not give in to temptation. He ascends the mountain and gives the law.
Zeichmann writes on the term “Caesar”:

The history of the word “Caesar” is important to consider, as the term’s primary meaning changed around the time Mark was written. By the third century b.c.e., “Caesar” was a cognomen for a family of the gens Iulia, a line that eventually included Julius Caesar.Julius Caesar posthumously adopted Octavian (previously Octavius) as his son, and Octavian followed naming conventions such that his name was Gaius Julius Caesar Octavianus. When Octavian received the title princeps civitatis and became known as Augustus, “Caesar” remained part of his longer name. The tradition of the emperor adopting his successor continued, and Caesar remained a personal name for the new or eventual imperator. Though documentation could be stronger, “Caesar” appears to have changed from a name to an imperial title during the Year of the Four Emperors (68–69 c.e.). The Julio-Claudian line came to a close with Galba’s accession to the throne. He was prob- ably the first to use “Caesar” without the pretence of adoption concomitant with his rise to princeps. In this use of “Caesar,” he lacked any basis for kinship claims with the Julio-Claudian line. Galba assumed Caesar as a title, though he may have adopted his assumed successor Piso Lucinianus whereupon Piso took Caesar as a name, not a title. Thus, although Galba did not use it as a name for himself, “Caesar” functioned in a nominal sense for his intended successor. Neither Otho nor Vitellius used “Caesar” during their brief reigns as emperor since neither was adopted, which provides further evidence that “Caesar” held a nominal quality during the Jewish War.
Vespasian himself was never adopted by a member of the Julio-Claudian dynasty, despite using “Caesar” for himself shortly after he was declared emperor. Vespasian apparently began the tradition of using “Caesar” as a title for the imperial heir with the assumption that it would be supplemented with “Augustus” upon the heir’s accession as princeps. He named both of his biological sons, Titus and Domitian, “Caesar” after his own recognition as emperor…
Christopher B Zeichmann, The Date of Mark’s Gospel apart from the Temple and Rumors of War: The Taxation Episode (12:13-17) as Evidence, The Catholic Biblical Quarterly, Volume 79, Number 3, July 2017, pp. 422-437
https://www.loebclassics.com/view/macrobius-saturnalia/2011/pb_LCL510.349.xml?readMode=recto

In a response to this, Bethlehem was in Judea, not Syria. Judea did eventually get annexed as a satellite territory of the Syrian province, but that was not until ten years after Herod died.
It is widely accepted that Matthew’s nativity story is modelled after the story of Moses in the Septuagint and in Josephus Antiquities 2.9.2-3. It follows the same story beats, including the slaughter of innocents and the dream that warns Joseph/Amram. There’s even at least one direct quotation of LXX Exodus. For example:

• Pharaoh is miraculously warned of the birth of a Hebrew who threatens his kingdom. (Josephus)
  Herod is miraculously told of the birth of a Jew who threatens his kingdom.
• This warning comes from one of Pharaoh’s “sacred scribes”. (Josephus)
  Herod learns about the baby from the magi, scribes and priests.
• Pharaoh and the Egyptians are filled with fear. (Josephus)
  Herod and “all Jerusalem” are frightened.
• Pharaoh commands that all Hebrew infants be killed. (Josephus, Exod. 1:22)
  Herod commands that all Bethlehemite infants be killed.
• God appears in a dream to Amram (Moses’ father) to reassure him and thwart Pharaoh’s plans. (Josephus)
  An angel of the Lord appears to Joseph in a dream to thwart Herod’s plans.
• Pharaoh dies. (Exod. 2:23)
  Herod dies.
• Moses is told by the Lord to return to Egypt, since “those who were seeking your life are dead.” (Exod. 4:19)
  Joseph is told in a dream to return to Israel since Herod is dead. Note the near-identical wording in Matt. 2:20: “those who were seeking the child’s life are dead.”
• Moses takes his wife and children and returns to Egypt. (Exod. 4:20)
  Joseph takes his wife and child and returns to Israel.

See Raymond E. Brown’s Birth of the Messiah for more details.
Celsus also seems to deny the historicity of the Massacre of the Innocents:
That Herod conspired against the Child (although the Jew of Celsus does not believe that this really happened), is not to be wondered at. For wickedness is in a certain sense blind, and would desire to defeat fate, as if it were stronger than it. And this being Herod’s condition, he both believed that a king of the Jews had been born, and yet cherished a purpose contradictory of such a belief; not seeing that the Child is assuredly either a king and will come to the throne, or that he is not to be a king, and that his death, therefore, will be to no purpose. He desired accordingly to kill Him, his mind being agitated by contending passions on account of his wickedness, and being instigated by the blind and wicked devil who from the very beginning plotted against the Saviour, imagining that He was and would become some mighty one. An angel, however, perceiving the course of events, intimated to Joseph, although Celsus may not believe it, that he was to withdraw with the Child and His mother into Egypt, while Herod slew all the infants that were in Bethlehem and the surrounding borders, in the hope that he would thus destroy Him also who had been born King of the Jews.
For he saw not the sleepless guardian power that is around those who deserve to be protected and preserved for the salvation of men, of whom Jesus is the first, superior to all others in honour and excellence, who was to be a King indeed, but not in the sense that Herod supposed, but in that in which it became God to bestow a kingdom, — for the benefit, viz., of those who were to be under His sway, who was to confer no ordinary and unimportant blessings, so to speak, upon His subjects, but who was to train them and to subject them to laws that were truly from God. And Jesus, knowing this well, and denying that He was a king in the sense that the multitude expected, but declaring the superiority of His kingdom, says: “If My kingdom were of this world, then would My servants fight, that I should not be delivered to the Jews: but now is My kingdom not of this world.” Now, if Celsus had seen this, he would not have said: “But if, then, this was done in order that you might not reign in his stead when you had grown to man’s estate; why, after you did reach that estate, do you not become a king, instead of you, the Son of God, wandering about in so mean a condition, hiding yourself through fear, and leading a miserable life up and down?” Now, it is not dishonourable to avoid exposing one’s self to dangers, but to guard carefully against them, when this is done, not through fear of death, but from a desire to benefit others by remaining in life, until the proper time come for one who has assumed human nature to die a death that will be useful to mankind. And this is plain to him who reflects that Jesus died for the sake of men — a point of which we have spoken to the best of our ability in the preceding pages.
See (Origen’s Contra Celsum).
How the Gospels Became History: Jesus and Mediterranean Myths (Yale University Press, 2019) M. David Litwa:
Suetonius’s biography of the emperor Augustus (sole rule 31 BCE–14 CE) is known for its thorough research, detail, and abundance of documentation. Suetonius had read Augustus’s private correspondence, his autobiography, his will, and many other records reported in archives and by other historians. One of these was Julius Marathus, the freed slave of Augustus and his recordkeeper… According to Marathus, there was a public portent that appeared months before the birth of Augustus. Suetonius did not transmit its content. It could have been a shooting star, a shower of blood, a lamb born with a pig’s head, and so on. Whatever it was, the portent was formally reported to the Senate, and the interpreters of portents (or haruspices) were asked to offer their interpretation. These interpreters proclaimed that “Nature” was about to bear a king for the Roman people…

The terrified Senate thus took extreme measures. It issued a decree that forbade the rearing of any male child for an entire year. The effects of this decree would have been as tragic as Herod’s slaughter of the infants. Parents throughout Italy would have been forced to kill their own children or let them starve. Nevertheless, a group of senators whose wives were expecting babies blocked the decree by a simple measure. They saw to it that the decree was never filed at the Treasury building. This intentional oversight prevented the measure from becoming law. In this way, Augustus—deliverer and future king of Rome—was saved.

1. The Invention of Religion: Faith and Covenant in the Book of Exodus (Princeton University Press, 2018), Jan Assmann:

The principal difference between the birth legend of Moses and the tale of the slaughtered infants in Bethlehem lies in the motif of prophecy. Entirely missing in the case of Moses, it provides the spur to Herodian persecution in the case of the Christ child. The link between a prophesied future king and the murderous plans of the reigning monarch can also be found in an Egyptian story that has come down to us in a seventeenth – or sixteenth – century papyrus but may well be much older, since it refers to events from around the mid-third millennium. King Khufu, the builder of the great pyramids, is given a prophecy by a wizard that he will be succeeded by three kings, the eldest of whom knows a certain secret concerning Khufu. This message is not to the king’s liking. He demands to know precisely when and where these kings will be born and learns that the sun god himself has impregnated the wife of his priest with all three. Khufu is told the time and place, and we may assume that his intentions toward these children are far from benign. The triplets duly come into the world under miraculous circumstances and with divine support. A maidservant, quarreling with their mother, runs off to inform the pharaoh about the birth of the three kings, only to fall into the water on her way and be snapped up by a crocodile. Although the papyrus breaks off at this point, the outline of the story is clear enough. What is foretold here is evidently the birth of the three kings (not just one: these are the first three kings of the fifth dynasty) who will put an end to the tyrannical regime of the pyramid builders and usher in a new era of godly rule, signaled by the temples they will erect to the sun god. Khufu attempts to eliminate the children, and the missing ending to the papyrus must have told how that attempt is thwarted.

I should add, the idea of Celsus doubting the historicity of the Massacre of Innocents is generally said to be here: https://www.repository.cam.ac.uk/bitstream/handle/1810/260628/CarletonPaget.pdf?sequence=4

Herod isn’t mentioned in any of the other Gospels, and for this reason, many scholars have questioned its historicity. For instance, Helen Bond, convinced by the work of Jay Harrington, concludes that the trial in front of Herod can be accounted for as a Luken creation based on material about Herod and Mark. Another possible explanation is that Luke worked up the story from Psalm chapter 2.

The herod massacring male children at Bethlehem is a reapplication of the OT story of the wicked Pharoah

A violent aspect of the birth of Jesus and the establishment of his fictive family is the episode of Herod’s slaughter of the children of Bethlehem (2.13-18) (Carter, Matthew and the Margins, p. 89). Matthew models Jesus’ nativity on that of Moses, a savior whose story involves the deaths of many children (Exod. 1.22-2.5; 11.1 10; 12.29-32). Discussions of the thematic connection between Pharaoh’s decree to kill the infant boys (Exod. 1.22-2.5) and Herod’s slaughter of the children of Bethlehem in Mt. 2.13-19 are found in:

As Moses is rescued from a brutal king (Exod. 1.22-2.5) and later rescues his people (Exod. 12.29-32), so also Jesus is rescued from a brutal king and later saves his people from their sins (cf. Mt. 1.21) (Keener, Matthew, pp. 106-108; Boring, ‘Matthew’, p. 149; Patte, Matthew, pp. 36-37. With the parallel to Moses, Matthew sets up a fulfillment citation: ‘Out of Egypt I have called my son’ (Mt. 2.15; cf. Hos. 11.1 and Exod. 4.22). Richard J. Erickson, ‘Divine Injustice? Matthew’s Narrative Strategy and the Slaughter of the Innocents (Matthew 2.13 23)’, JSNT 64 (1996), pp. 5-27). Erickson also notes the similarity between Joseph’s receiving a dream instructing him that the men who seek the life of the child are dead and Moses’ receiving information that the men seeking his life are dead. Moses takes his wife and children back to Egypt (Exod. 4.20), while Matthew takes his wife and child from Egypt back to Israel (Mt. 2.21). Erickson recognizes that here, Moses is being compared to Joseph, not Jesus, but does not think this spoils the typology (‘Divine Injustice’, p. 16). Several interpreters conclude that there is no outside historical evidence of the Matthean ‘slaughter of the innocents’.

**Apart from Matthew, __no ancient source refers to a slaughter of children ordered by Herod. __The Jewish historian Josephus, who meticulously recorded Herod’s atrocities, does not mention this event. If he knew about it he would have reported it. There are three considerations that weigh decisively against the historicity of the story. **

• 1. The story cannot stand on its own apart from Matthew’s narrative. Herod orders the slaughter because of the information brought to him by the magi about the timing and meaning of their new star. Since the star and the magi are fictions, there is no motive for Herod to kill the boys.
• 2. The story could be historical only if Jesus was actually born in Bethlehem, which he almost certainly was not.
• 3. The scene meshes seamlessly with Matthew’s strategy of modeling the infancy of Jesus after the story of baby Moses in the Moses Haggadah. Herod’s monstrous act exactly mirrors Pharoah’s attempt to kill Moses by ordering the mass murder of Hebrew infants. This story in inextricably rooted in Matthew’s literary agenda, not in historical remembrance.
  The massacre in Matt 2:16 may be fictitious, but it is realistic fiction, for it rings true to the historical character of Herod. He murdered with impunity. He was especially ruthless when dealing with anyone he feared would become a rival. He murdered his brother, several of his wives and in-laws, and three of his own children. A bad joke of the day, a Greek pun attributed to Caesar Augustus, was that it was safer to be Herod’s pig (hus) than his son (huios). This alludes to Herod’s futile attempt to be accepted as a Jew by keeping a kosher, pork-free table. Herod was well aware how deeply he was hated by his subjects. As a final act of calculated viciousness, he pre-arranged for a number of popular Jewish leaders to be assassinated as soon as he died, to ensure that there would be weeping in his kingdom on the day of his death.