As with SharePoint 2003, administrators in SharePoint 2007 are able to save a site built to their specifications as a template. Also similar to 2003, some of the functionality doesn’t come through in the menu options available.
By navigating the SharePoint 2007 Site Settings options, it would appear that you can only save top level sites (in a site collection) as a template. “Save site as template” is found under the heading of “Look and Feel” on the Site Settings page.
When you navigate to the site settings of a subsite, the option to save site as template does not appear. As there were in SharePoint 2003, there are a number of quasi-hidden pages available that are not directly accessible (or at least easy to find) in the administrators menus. Many of these pages can be found by experimenting a bit – looking at the pages that are used by a top level site and extending it to a sub site. This is one of those pages.
http://wss.toplevelsite.com/_layouts/savetmpl.aspx is accessible via the Site Actions -> Site Settings page menu.
http://wss.toplevelsite.com/subsite/_layouts/savetmpl.aspx isn’t available via the menu options, but is a valid page for the subsite.
One thing to keep in mind is that all site templates created in this way, regardless of the site they are created at, are stored at the top level site. On the Site Settings page, the list of templates is available under “Galleries” as “Site templates”.