Another way to look at it is to say that the answer is neither or both.
If you just get KO2s, you are not really ready for 4x4 trails. Sure, you can do some milder ones, but be ready for work and stress.
If you just get a lift, then that won't cut it either as mentioned above.
If you do not really do 4x4 trails, then stock size Conti terrain contact AT should be perfect. I use them as DD and they did extremely well on dirt on my only off-pavement trip with them. They really do grip very nicely on dirt. They seem too mild for rocky 4x4 trails though (and are not advertised for rock but for sand and dirt).
So, it really depends on what you want to do. I'd say go all the way to 2" lift, bigger tires, and skid plates for any 4x4 trails or just go with milder stock size or 235 60 17 and skid plates for dirt roads and high-clearance trails. Bigger tires will impact acceleration, braking, and your relations with most dealerships. A 2" lift was fine with the insurers I spoke to but it is worth checking on that, too.
Bear in mind that paper numbers and real numbers are very different. With 2" lift and 225 65 17 tires at 20 psi and typical trail load, which is light, I have 10" to front skid plate and 8.5" to rear diff skid plate. The clearance changes a great deal with a lift, overall, but the minimum clearance does not improve one iota. It just switches from along the exhaust to the rear skid plate. The skid plates eat about 0.5" (a little more actually) and tires quickly lose diameter. Just fyi.