I am confident the larger size is for you, but that's not important right now.
You are 100% missing the boat for not going with a 29er. For a hardtail XC bike, there is never a reason to go smaller. They are that much faster and more comfortable. Especially for the trails in your area.
I grew up on 26s and made the jump. Definitely a big difference.
You can update your 1996 frame, but won't notice a huge difference between that and a new one. A new wheel size, however, will change how you see and ride your trails.
You really owe it to yourself to at least try. You.ll thank me later.