How does a Galilean telescope form an enlarged image even though it has a diverging lens? I have been reading about Galilean telescope and the picture in the book is something like this: 

After rays pass through the converging lens, there is a real image formed which is intercepted by the diverging lens but as I learnt before, diverging lens cannot form an enlarged image. So, is the ray diagram inaccurate? 
 A: The angular magnification of a telescope $M$ is defined as the ratio of the angle subtended by the image of the object when looking through the telescope $b$ to the angle subtended by the object when looked at with the unaided eye $a$.  
$$M=\dfrac ba$$
Those angles are often called visual angles and they detained the size of the image which is formed on the retina.
The bigger the visual angle, the bigger the image formed on the retina and the bobber the “object” being viewed is perceived to be.  
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I have annotated your diagram which clearly shows that $b>a$ which means that the angular magnification of such a telescope is greater than one ie the Galilean telescope magnifies.  
The final image can be formed at infinity as shown in the ray diagram below.
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$f_1$ if the focal length of the convex lens which converges the incoming rays and $f_2$ is the focal length of the concave hens which diverges the incoming rays.
Again the visual angle for the final image $u’$ is greater than the visual angle for the object being observed $u$.
A: There is your answer, the Galilean telescope - the assembled telescope as a whole with EVERY component part of it in its correct place - magnifies.
But you did raise a concern in your question that a diverging (or concave) lens cannot form an enlarged image.  That is also correct. Such a lens, standing alone, a single component not in a telescope and not in conjunction with another lens -indeed cannot magnify.
This is probably a poor simile, but a car wheel by itself cannot move, it will just sit where you happen to leave it.  But put it in its correct place with other component parts, in this case called a "car", and that wheel suddenly has the capability of movement.
Sometimes, things can work only when they work together.
A: I think that perhaps the ray diagram in this article
https://thesciencegeek.org/2018/03/13/galileo-and-the-telescope/
 is perhaps easier to follow. It shows clearly how the angular magnification is achieved. The article provides useful background
A: In addition to the other excellent answers, let me add a pedagogical point. 
Telescopes do not create a magnified image. No image of the Moon is going to be bigger than the Moon itself. 
So a lot of the optics idioms one first learns are not directly applicable. 
Instead, a telescope magnifies the angles you see. So thinking about how lenses change the angles of rays helps you find the answer. 
