Mirage formation is primarily due to the phenomenon of refraction of light (3). When light passes through layers of air with different densities, it bends or changes direction. This bending of light causes the apparent displacement of objects, creating the optical illusion of a mirage.

Terrestrial heating (1) refers to the heating of the Earth`s surface by the Sun, which can create temperature gradients in the air that contribute to the formation of mirages.

Reflection of light (2) occurs when light rays bounce off a surface without entering it. While reflection can contribute to optical illusions, it is not the primary factor in mirage formation.

Diffraction of light (4) refers to the bending or spreading of light waves as they encounter an obstacle or pass through an opening. While diffraction can affect the behavior of light, it is not the primary cause of mirage formation.

Therefore, the correct answer is 1 and 3: Terrestrial heating (1) and refraction of light (3) contribute to the formation of mirages.