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Option 1 is correct as it states that the P. V. Narasimha Rao government established diplomatic relations between India and Israel. This happened in 1992 when P.V Narasimha Rao was the Prime minister of India and he made a significant shift in India`s foreign policy by establishing full diplomatic relationship with Israel.
Option 2 is incorrect. Ariel Sharon was the first Israeli Prime Minister to visit India, not the second. His visit took place in 2003 and it represented a major step forward in building a partnership between the two countries.
Option 3, which says both statements are correct, is incorrect, given that the first statement is correct and the second is not.
Option 4 suggests that both statements are incorrect. But this is not the case, as Statement 1 is correct. Therefore, option 4 is also incorrect. Therefore, the correct answer is option 1.