What is the best method to reset a user password when password is hashed:
2 is the best method. Never ever mail a password in plain form. Even better, don't keep it in your system this way. Always have it hashed and salted.
Follow-up to comments: Emailing hashes instead of plain passwords may also be insecure but you are pursuing a different goal through this. Many people use the same password for all sites, from Facebook up to online-banking. A particular hash may get compromized, but not the password itself, which is the point.
Create a unique hash link for resetting password which is valid for an hour and sending that link to mail
This is the method that I prefer. It allows you only to reset the password if and only if the user visits the link. This way, if someone is maliciously trying to reset passwords, the user can simply delete the email and be unaffected (not have to enter a new password).
Also, you should give the reset link some sort of longer expiration date (like 12 to 24 hours).
#2 is preferable to #1 if only because sending a password in plain text via email exposes it unnecessarily.
Other options are:
It depends on the sensitivity of the information you are protecting...
There is a fine balance between security and usability, and you need to decide where it is, and what assets you are protecting.
What I would normally do (assuming to financial data is involved) is option 2, minus the 1 hour limit.
I found a really interesting method on some websites: they are sending you a new password via SMS. This is awesome because the e-mail can be hacked but the phone... I don't think can be easily hacked.