None of the above!
What you describe almost never happens. That's not because statutes never contradict each other. Statutes contradict (or appear to contradict) each other all the time – lawyers take advantage of this, arguing the statute that seem to favor their client is the relevant one. What almost never happens is that a court finds that two statutes (or even two parts of the same statute!) really do contradict each other. Courts can do this because almost every statute can be interpreted in different ways. When statutes appear to conflict, courts interpret those conflicts away.
The logic that courts use to justify interpreting statutes this way is simple. They start by assuming that it would be insane for a legislature to pass laws that conflict. Imagine what would happen in Massachusetts if the legislature said, "In Massachusetts, divorce is legal and illegal." To prevent such chaos, courts presume that legislatures are not insane, so they "presume" the laws only appear to contradict each other because they are being misinterpreted. Court use this presumption to correct those misinterpretations by showing that, when interpreted correctly, the statutes are consistent, not contradictory.
To do this, the courts make use of what are known as canons of statutory interpretation. As one law professor put it, "Canons are simply interpretive guidelines which, by dint of judicial repetition, take on the appearance, if not the reality, of a legal rule." There are canons explaining how to deal with everything from the words in a list to conflicts between statutes. Some canons are so commonly used that they are known by their nicknames, such as the “canon against superfluity" or the "last-antecedent rule." (Many are in Latin: "expressio unius," "noscitur a sociis" or "ejusdem generis".
As Amon and Trish point out in the comments to the OP, there are two canons that are often used when statutes appear to conflict:
- Generalia specialibus non derogant: If there is a conflict between a general law and specific rule, the specific rule prevails.
- Newer laws amend older laws.
What if two laws really are contradictory?
In that case, the court should refuse to enforce either law. If the court picked one of the laws, it would effectively by making law. Under our system of separated powers, legislatures, not courts, legislate.
How to find out more about canons
The canons are a hot topic in law right now, largely because of Justice Scalia's insistence on the primacy of the text. His last book, "Reading Law: The Interpretation of Legal Texts," discusses the canons at length. (You can see a list of the canons he discusses here.)
Unfortunately, reading a list of canons, or articles about them, without seeing how they are used, is about as helpful as reading the rules of baseball without ever watching a game. The best way to learn how canons are actually used is to read a law school casebook. For canons, the best choice is Williams Eskridge's "Legislation" casebook. It devotes an entire chapter to the canons, including many (edited) examples of real decisions using them. And, since the canons change only slowly, you don't need the latest edition -- earlier editions are available for almost nothing ($3.51) online!