* Option A (Create an Azure Resource Manager template): This wouldn't circumvent the policy enforcement. Even with a template, you cannot create resources that the policy explicitly denies.
* Option B (Add a subnet to VNET1): Adding a subnet does not address the policy restriction on creating virtual machines. Also, the existing VNET1 can already have multiple subnets.
* Option C (Remove Microsoft.Network/virtualNetworks from the policy): This isn't necessary because you're not trying to create a new virtual network; you are connecting to an existing one, VNET1.
* Option D (Remove Microsoft.Compute/virtualMachines from the policy): This is the correct action because it directly addresses the restriction that is preventing you from creating a new virtual machine in RG1. Removing the virtual machine resource type from the not allowed list in the policy will enable you to create VM2.
Remember, changes to policies might take a few minutes to propagate. After updating the policy, you should be able to create the new virtual machine VM2 and connect it to VNET1.