Option 2 was if the Jedi completely abstained from the war. Not fighting no matter what, even going so far as fleeing the Mandalorians.
The Republic would have lost without the Jedi. When Revan brought the Jedi into the war, Republic recruitment skyrocketed. Morale went through the roof. If Option 2 occurred, the Republic would have lost, eventually. The Mandalorians were employing a brilliant strategy that allowed Mandalore to play the Republic like an instrument.
The recruitment skyrocketed because Revan gave them new hope. But I think if the Mandalorians would have taken a World like Corellia or Alderaan, the recruitment also would have skyrocketed out of desperation. The Empire did underestimate how willing Republic citizens are to fight for their freedom and I think the Mandalorians would have done the same.
Let me ask you all a few questions.
Do you feel Revan was right to go to war?
Do you think his actions during the war were right?
No. But doing nothing would have been wrong too. He had to choose between two evils.
No, definitly not. He became worse and worse during the war.