There are already cities in California surrounded by forest. We could expand them by adding new homes, building robust fire-fighting infrastructure (including fire breaks) in the process so the homes don't burn down.

My intuition is that a city will be easiest to defend from fire if its area-to-perimeter ratio is low, i.e. it is big. For example, there is no real risk of San Jose burning down in a fire, because its area (square of the radius) means it has lots of water mains and firefighters, while its perimeter (linear in the radius) is comparatively defendable. That suggests the strategy of expanding existing forest cities.