The word "אֶת" can mark the direct object (as in Gen. 1:1) or mean "with" (as in Gen. 35:14). I recently saw someone ask whether "וְאֶת", the first word of Gen. 17:21, means "and with", which struck me as odd: I'd always thought that that was the direct-object marker. But then I realized that there are two ways to read the verse ("וְאֶת בְּרִיתִי אָקִים אֶת יִצְחָק"):
Which is correct?
Onkelos' Aramaic rendering of this phrase is:
... וְיָת קְיָמִי, אֲקֵים עִם יִצְחָק
He translates the first "את" as "יָת," which is the equivalent direct-object word, and the second as "עִם," which means "with." (See Jastrow for confirmation of these understandings of the Aramaic.) So, his translation is consistent with your second option.
Ha'amek Davar elaborates, consistent with that translation:
אבל את בריתי להיות מושגח בפרטות. ושיגלה כבוד ה׳ לעמים יהיה עם יצחק
But My covenant, to supervise in particular, and to reveal the honor of God to the nations, will be with Yitzchak.
My translation of the Ha'amek Davar
It is translation #2, confirnming that the word את is used as a direct object marker. I will give you a few verses, so that you can see why this translation makes the most sense:
Genesis 17:19-21:
וַיֹּ֣אמֶר אֱלֹהִ֗ים אֲבָל֙ שָׂרָ֣ה אִשְׁתְּךָ֗ יֹלֶ֤דֶת לְךָ֙ בֵּ֔ן וְקָרָ֥אתָ אֶת־שְׁמ֖וֹ יִצְחָ֑ק וַהֲקִמֹתִ֨י אֶת־בְּרִיתִ֥י אִתּ֛וֹ לִבְרִ֥ית עוֹלָ֖ם לְזַרְע֥וֹ אַחֲרָֽיו׃ וּֽלְיִשְׁמָעֵ֘אל שְׁמַעְתִּיךָ֒ הִנֵּ֣ה ׀ בֵּרַ֣כְתִּי אֹת֗וֹ וְהִפְרֵיתִ֥י אֹת֛וֹ וְהִרְבֵּיתִ֥י אֹת֖וֹ בִּמְאֹ֣ד מְאֹ֑ד שְׁנֵים־עָשָׂ֤ר נְשִׂיאִם֙ יוֹלִ֔יד וּנְתַתִּ֖יו לְג֥וֹי גָּדֽוֹל׃ וְאֶת־בְּרִיתִ֖י אָקִ֣ים אֶת־יִצְחָ֑ק אֲשֶׁר֩ תֵּלֵ֨ד לְךָ֤ שָׂרָה֙ לַמּוֹעֵ֣ד הַזֶּ֔ה בַּשָּׁנָ֖ה הָאַחֶֽרֶת׃
(My modifications to Sefaria translation:)
And God said: ‘‘But Sarah, your wife shall bear you a son; and you shall call his name Isaac; and I will establish (obj. marker) My covenant with him for an everlasting covenant for his seed after him. And as for Ishmael, I have heard you; behold, I have blessed him, and will make him fruitful, and will multiply him exceedingly; twelve princes shall he give birth to, and I will make him a great nation. But (obj. marker) My covenant will I establish with Isaac, whom Sarah shall bear unto you at this set time in the next year.’
I have bolded the term אֶת־בְּרִיתִ֥י as well as marked in the English, where the word אֶת would be (as there is no direct English word translation for it.)
The 1st verse, verse 19 mentions the covenant that G-d is making with Isaac. I think you agree, that in verse 19, it does not mean "with". Then, verse 20, interrupts the "thought" as G-d talks about Yisma'el. Finally, in verse 21, he goes back to talk about the same covenant that was mentioned back in verse 19. The same terminology is used.
If it meant the word "with", the Torah would use the term ועם .
The Malbim (commentary to Numbers 22:21) writes that את is used as "with" when two entities are engaged in the same activity but are not equals in that activity. Thus Bilaam was told not to go with - עם - the messengers of Balak (Numbers 22:12), but was told he could go with - את - the messengers of Balak (Numbers 22:20), and was then scolded for going with - עם - the messengers of Balak (Numbers 22:21), because he was meant to go along with them, but not with the intent to harm the Jewish people as was their intent.
Thus, "את" as a conjunction is used between two objects involved in the same activity, not as one acting through another (i.e. "he went to the store with me" and not "I built my shed with this hammer"). This usage of "את" meaning "with" wouldn't work in this verse, and therefore it must default to it's usage as direct-object marker.
