What is the right course of action?

Your choice 1 and 2 is correct.

The key rule is: when you turn (especially turning left), you must yield to oncoming traffic that goes straight or turns right, and you must also let more vulnerable road users (like cyclists) who are crossing your turning path go first.

Here, the blue car is coming from the right and is driving straight across the intersection. Since you are turning left, you cross its path, so you must let the blue car pass through first (answer 2).

The cyclist is coming from the opposite direction and is turning left into the side street on your left. Your left turn would cut across the cyclist’s intended path. In Germany, you must not endanger or obstruct such road users when turning, so you have to allow the cyclist to turn (answer 1).

Because both the blue car and the cyclist have priority over your left turn, the statement that the blue car has to allow you to turn is wrong (answer 3).