model2 form updated

    <%= nested_form_for [@model1, @model2 :html => { :class => 'form-horizontal' } do |f| %>
    ...
      <div class="control-group">
        <%= f.label :model3_id, :class => 'control-label' %>
        <div class="controls">
          <%= f.select :model3_id, @model1.models3.order(:name).collect { |c| [c.name, c.id]} %><br />
        </div>
      </div>

  <%= f.fields_for :model3 do |model3_form| %>
    <%= model3_form.text_field :name %>
    <%= model3_form.link_to_remove "Remove this model3" %>
  <% end %>
  <p><%= f.link_to_add "Add a model3", :model3 %></p>

    ...