I voted for #3, but I agree that it would be nice to garner a foothold on their continent first. By taking a city, we could probably add a tech as well. We know that they have iron working, and I THINK that we'll need that eventually for gunpowder (a bit slow to remember my civ2 tech tree).
Additionally, while we're at "peace" and still in a monarchy, I would suggest taking advantage of the tribute option whenever possible. I would think that we could probably get some gold from them every 3-4 turns. If THEY declare war on us - heck we'll just take another city and start the process over again!