iPadOS Safari menus are dynamic - in that the available menu items change to reflect the available task(s). Other than improving and extending Safari’s functionality, nothing has changed - and features that you are used to seeing are still there.
The Open in Background menu-item is correctly labelled for your current settings; as the New Tab is being opened as a “background” process, your current tab remains your active “focus”.
Your current setting is this:
Settings > Safari > Open New Tabs in Background > ON
If you change this setting to OFF, Safari’s behaviour will change to reflect this change and the dynamic menu-item will change to Open in New Tab. With this modified setting, a New Tab will open as a “foreground” process - and your active tab (focus) will immediately change to the new tab.
So in conclusion, Safari works as designed - and is so much the better for it; the dynamic options list is accurately and correctly labelled to reflect your chosen settings. If you would like the option to be “Open in New Tab”, just change your Settings to this:
Settings > Safari > Open New Tabs in Background > OFF
I believe that you’ll find some additional resources helpful in better understanding iPadOS Safari...
The first is a document originally authored to explore many of the “troubles” that device owners, new to iPadOS Safari’s advanced features, might experience - including fixes and work-arounds for commonly encountered challenges. You’ll hopefully find the document useful in learnIng about many of the more interesting features of Safari:
https://discussions.apple.com/docs/DOC-250002077
Second, the iPad User Guide for iPadOS is a valuable and frequently overlooked source of information and guidance. The User Guide is available in both downloadable and online versions:
https://help.apple.com/epub/ipad/en/
https://support.apple.com/guide/ipad/welcome/ipados
I hope this explanation and clarification is helpful to you - and resolves your desire to restore the “Open in New Tab” option.