Thanks, I just ran a dozen tests, was able to make it completely work only once, using your second suggestion. That success came in my final trial.
The 2 steps are on the same domain, disneyplus.com.
What unites the failure of all of the following tests is 1Password failing to show the New Login window even when manually requested by me.
First try, I was able to get the Login created at the first step. Entered username, clicked the inline Save Password button, was shown the 1Password New Login window, adjusted it to use the Login item name I want, and then saved the Login. A Login item was created as expected. On the next page to create password, the moment I accepted the inline generated password extension, a Password item was created. This is good, so far. I then followed your instructions to try to use the Extension gear icon approach, but this didn't work. After clicking the gear's New Login option, the 1Password New Login window was not displayed to me. So I was left with a saved Login item and a separate saved Password item, and would have to manually copy the password from the Password to the Login. That's the same outcome as my original outcome.
I repeated the test many times, and things got worse. The new problem was now even the initial login creation step started failing, as 1Password stopped showing me the New Login window even at that stage.
I tried both with the inline method, and the extension method.
Inline: after entering user name, click Save Password prompt, and nothing happens. Not shown the New Login window.
Extension: after entering user name, click Extension gear, select New Login, and nothing happens. Not shown the New Login window.
I restarted Safari many times, and completely quit/restarted 1Password a few times. Tried a private window once (just in case some cookie was causing mischief).
FINALLY, I got both steps to work using your second suggestion. Saved the new login by pressing the Save Password button from the inline prompt - it properly gave me the New Login window and I created the Login. Then in the next step accepted the generated password (whereupon 1Password instantly created a Password item), then clicked the Extension gear/New Login, was finally shown the expected New Login window, picked Update Existing, and 1Password copied the password into the Login and removed the temporary Password item. This was complete success, at last.
So it can work, with manual intervention to update the login with the password, but only if I can get the New Login window to appear at the required times during user name and password creation time, and for some reason 1Password isn't doing that reliably at disneyplus.