The correct answer is the second one, a theocracy is ruled by religious leaders who claim to act with divine authority.
Theocracy, which comes from the words theos (God) and kratos (power), is a form of government in which the rulers of the state are also the authority of the dominant religion. Generally, the government claims to rule in the name of the divinity, from whom they posit their authority derives, and the policies are also very influenced by the principles of the main religion.
