return statement and exception in try block in java

Because your return statement is unreachable - the execution flow can never reach that line.

If the throw statement was in an if-clause, then the return would be potentially reachable and the error would be gone. But in this case it doesn't make sense to have return there.

Another important note - avoid returning from the finally clause. Eclipse compiler, for example, shows a warning about a return statement in the finally clause.

The compiler exception come from, like my Eclipse dude says

Unreachable code    Test2.java  line 11 Java Problem

The return statement of your main code block will never be reached, as an exception is thrown before.

Alos notice the return statement of your finally block is, at least, a design flaw, like Eclipse once again says

 finally block does not complete normally   Test2.javajava  line 14 Java Problem

Indeed, as a finally block is only here to provide some clean closing, it is not expected to return something that would override the result normally returned by the method.

The throw new Exception() will be called no matter what, so anything within the try block that follows the throw is Unreachable Code. Hence the Error.

public class Test2 {
    public static void main(String args[]) {

        System.out.println(method());
    }

    public static int method() {
        try {
            throw new Exception();
            return 1; //<<< This is unreachable 
        } catch (Exception e) {
            return 2;
        } finally {
            return 3;
        }
    }
}

It should eventually return 3.

Because 'return' keyword within try block is unreachable, that's why you are getting compile-time error. Omit that 'return' keyword from try block, and then run your program, your will successfully compile.