Some archeologists have found evidence that indicates the Jews did indeed create their own history by writing about Moses, Abraham, etc. Whether the average jew at the time knew it was all made up, or whether they were deceived is another story though.
But many, if not a majority of practicing Jews seem to take the bible literally today. In addition, Jesus confirms two of the outrageous stories of the Old Testament, indicating that the Jews of His time took the OT literally as well:
Matt 24:37: "But as the days of Noah were, so also will the coming of the Son of Man be."
Matt 12:40: "For as Jonah was three days and three nights in the belly of the great fish, so will the Son of Man be three days and three nights in the heart of the earth."
So Jesus himself not only validates the accounts of Noah and Jonah, but acts as though they were literal events. Nothing He says indicates they were only parables or symbolism. If you're a christian and you don't take the OT stories literally, then you're at odds with Christ himself.
The writer of Hebrews also goes in depth in Heb. 7 rambling on about Melchizedek, whom Abraham gave some spoils of war to as a 'tithe'. The writer was trying to bring a parallel between Melchizedek and Christ. If the Abraham story was just a myth, why would the writer go to so much trouble comparing an extremely minor character in Genesis with Christ?
While a Jew today may have more doctrinal leeway to think that the OT is just legends, a dedicated christian would be very hard pressed and would have to perform many mental gymnastics to get around Jesus, Paul, and other NT writers' literal perception of the OT.