  We present optical and near-infrared follow-up observations of the X-Ray
Flash (XRF) of July 23 2003. Our observations in the R-band cover the temporal
range from 4.2 h to 64 days after the high energy event. We also present the
results of multicolor imaging extending to the K-band on three epochs. The
lightcurve of the R-band afterglow the first week after the burst is similar to
the lightcurve for long duration Gamma-Ray Bursts (GRBs), i.e., a broken
power-law with a late time slope of alpha=-2.0 (F_nu propto t^alpha).
Furthermore, the spectral energy distribution (SED) has a power-law (F_nu
propto nu^beta) shape with slope beta=-1.0. However, the decay slope at t<1 day
is shallow, consistent with zero. This is in qualitative agreement with the
prediction that XRFs are off-axis classical GRBs. After the first week there is
a strong bump in the lightcurve, which peaks at around 16 days. The SED after
the peak becomes significantly redder. We discuss the possible interpretations
of this bump, and conclude that an underlying supernova is the most likely
explanation since no other model appears consistent with the evolution of the
SED. Finally, we present deep spectroscopy of the burst both in the afterglow
and in the bump phase. A firm upper limit of z=2.3 is placed on the redshift of
XRF030723 from the lack of Ly-alpha forest lines in the spectrum of the
afterglow. The lack of significant absorption and emission lines in either of
the two spectra excludes a spectroscopic redshift determination.
