The original method of producing Damascus steel is not known. Because of differences in raw materials and manufacturing techniques, modern attempts to duplicate the metal have not been entirely successful. Despite this, several individuals in modern times have claimed that they have rediscovered the methods in which the original Damascus steel was produced.
The reputation and history of Damascus steel has given rise to many legends, such as the ability to cut through a rifle barrel or to cut a hair falling across the blade, but no evidence exists to support such claims. A research team in Germany published a report in 2006 revealing nanowires and carbon nanotubes in a blade forged from Damascus steel. This finding was covered by National Geographic and the New York Times. Although modern steel outperforms these swords, microscopic chemical reactions in the production process may have made the blades extraordinary for their time. Woody biomass and leaves are known to have been used to carbonize the Wootz ingots used in Damascus steel, and research now shows that carbon nanotubes can be derived from plant fibers, suggesting how the nanotubes were formed in the steel. Some experts expect to discover such nanotubes in more relics as they are analyzed more closely.
info from: http://en.wikipedia.org/wiki/Damascus_steel