Sua consulta deve ser:
insert into table1 (col1, col2)
select t1.col1, t2.col2
from oldtable1 t1, oldtable2 t2
Ou seja sem os
VALUES papel. 
insert into table1 (col1, col2)
select t1.col1, t2.col2
from oldtable1 t1, oldtable2 t2
VALUES papel. 
