Hm this is a hard question, as more than one options are partially true, but I think that the best answer is the first one: concerned the geographic direction of the railroad (if I understand correctly that this is one of the options): Two roads were proposed, Northern and Southern, and this argument corresponded to the general conflict between the North and the South.
However, there was also a dispute concerning where in the East the railroad should start and how it would be founded; but those are more consequences of the conflict described above.