CREATE {DATABASE | SCHEMA} [IF NOT EXISTS] db_name
[create_specification [create_specification] ...]
create_specification:
[DEFAULT] CHARACTER SET charset_name
| [DEFAULT] COLLATE collation_name
CREATE DATABASE creates a database with the
given name. To use this statement, you need the
CREATE privilege for the database.
CREATE SCHEMA is a synonym for
CREATE DATABASE.
An error occurs if the database exists and you did not specify
IF NOT EXISTS.
create_specification options specify
database characteristics. Database characteristics are stored in
the db.opt file in the database directory.
The CHARACTER SET clause specifies the
default database character set. The COLLATE
clause specifies the default database collation.
Chapter 10, Character Set Support, discusses character set and collation
names.
A database in MySQL is implemented as a directory containing
files that correspond to tables in the database. Because there
are no tables in a database when it is initially created, the
CREATE DATABASE statement creates only a
directory under the MySQL data directory and the
db.opt file. Rules for allowable database
names are given in Section 9.2, “Identifiers”. If a database
name contains special characters, the name for the database
directory contains encoded versions of those characters as
described in Section 9.2.3, “Mapping of Identifiers to Filenames”.
If you manually create a directory under the data directory (for
example, with mkdir), the server considers it
a database directory and it shows up in the output of
SHOW DATABASES.
You can also use the mysqladmin program to create databases. See Section 8.10, “mysqladmin — Client for Administering a MySQL Server”.

User Comments
It seems that the syntax form is a bit off. The create_specification does not appear to be separated by commas.
I tried
create database table1 default character set 'utf8', default collate 'utf8_general_ci'
and it complains there is an error.
Removing the comma does the trick.
In reply to the comment by Yin-So Chen, the syntax does not suggest you need commas, so it makes sense that putting them in i invalid ;)
Also you use the name "table1" for a database - this is a bit confusing!!
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