Italian archaeologists relish a good argument and they are being kept busy by some startling discoveries that could shed more light on the origins of Rome. These include the lost “lupercal”, the cave where, as legend tells it, the she-wolf suckled the city’s founders Romulus and Remus. Just outside the city, meanwhile, archaeologists are also pondering the significance of a new pattern of Etruscan tombs and its implications for the older civilisation’s erosion by encroaching Rome.

It was during recent routine restoration and consolidation work on the ruins of Emperor Augustus’s house on the slopes of Rome’s Palatine Hill that sounding devices suddenly detected a large void 16 metres below present ground level. A camera probe then revealed a curved roof of some kind of temple-grotto. So rich was the decoration, decorated with mosaics and shells arranged in ever-smaller concentric circles around a central panel with a large white eagle – the symbol of Rome – on a pale blue background, that it could only be a place of huge significance.

“We are reasonably certain that this is indeed the wolf’s cave,” Angelo Bottini, head of Rome’s archaeological department, announced to the public with pride. Certainly the site cannot be far distant, as the protagonists of all the ancient legends concerning the city’s birth – traditionally placed at 753BC – tend to converge at this very place. Aeneas, who flew from Troy to found Rome, was welcomed here and helped in his battle against the Latins by the mythical Arcadian hero Evandrus. Romulus and Remus, carried in their basket by the waters of the Tiber, again are said to have landed close to the south-west slopes of the Palatine.

No sooner had Bottini spoken, however, than his predecessor, Adriano La Regina, expressed serious doubts. “There is absolutely no certainty about this. The correct position of the ‘grotto’ is further to the west, in front of the temple of the Magna Mater and the temple of the Vittoria,” he said, citing contemporary writers such as Dionysus of Halicarnassus. “This takes us nearer to the Tiber, on the banks of which the twins must have landed.”

La Regina did admit, however, that “even for Rome, where archaeological discoveries are the order of the day, the remarkable architectural and artistic quality of this ‘grotto’ makes it a real find.” He also claims that this is a rediscovery, as the grotto under the Palatine was seen and documented during the Renaissance, in 1534, but then lost. He also feels that its decorations are similar enough in style to Emperor Nero’s Golden House to make the discovery possibly part of his previous dwelling.

Bottini seems amused by the controversy. “It is not our policy,” he says, “to hide new discoveries.”

Whatever the truth, it remains an astonishing find. Much remains to be done, as more than two-thirds of the cavity is filled with debris and earth. This is only part of a vast scheme of excavation on the Palatine, on which the government is spending €12m ($17.7m, £8.9m), concentrating on the relatively unexplored area to the west.

Meanwhile, new sections of Augustus’s house and of his wife Livia’s have been restored and will be open to the public from February. Broken pieces of fresco have been put back. Instead of using chemical solutions to protect these from exposure to light and air, which encourage the growth of micro-organisms, archaeologists are relying on new lighting systems and careful temperature control.

The Palatine is still a magical area. As Georgina Masson points out in her Companion Guide to Rome, it became during the Republic what estate agents today would call “a desirable residential quarter”, thanks to its favoured situation above the Tiber and exposure to sea breezes. When Gaius Octavius became Augustus, the first Roman Emperor, he saw no reason to move from the dignified house he already owned. He must also have felt, however, that it did him no harm to emphasise the link with the city’s original founder.

Just up the coast, also enjoying the sea air, lies the largest necropolis in the Mediterranean, some 1,000 tombs linked by sacred ways outside the Etruscan city of Cerveteri. The oldest pre-date even Romulus and Remus.

Volunteer archaeologists working on a group of five tombs first discovered in 1866 just outside the main necropolis have come across what they believe is a unique feature – an adjoining piazza that appears to have served as a religious gathering place. Five more tombs, dating from the 4th and 5th centuries BC, have been discovered around the piazza, which had as its focal point what is thought to have been a ritual urn.

Vittoria Carulli, who is leading the dig, calls the square, about half the size of a basketball court, a unique find that was almost certainly used for religious celebrations. Little is known of them, however, as the Etruscans left few written records.

A narrow “sacred way” leading out of the square still has to be excavated but leads under the asphalt of a 1960s road. “What most fascinates me,” says Carulli, “is to understand what happened to this culture, which lasted 1,000 years, in its final period. These were people who showed deep fear of death, who treated the dead with great respect and elaborate ceremonies. This was the opposite of what the Romans did: the Romans were first of all warriors and for them death had no meaning and life was expendable.”

Cerveteri’s revolt against Rome was crushed in the 3rd century BC. Roman influence became more pervasive. What Carulli describes as the Romans’ “lax” approach to the ritual of death was reflected in the uncovered bodies archaeologists found left outside the tombs, one lying across another, apparently in the open.

“This would have been unthinkable in previous times. I am curious to understand how this happened,” muses Carulli. And apologising for her initial “grumpiness” at having to break off her work to give a tour, she drives off with a smile up the 1960s asphalt.