You can use either drive for Time Machine backups, or you can partition one of the drives as you suggest.
If your plan is to include the other external drive to be backed up, I would not partition the TM backup drive since you will need the capacity for the backups. A general rule of thumb is the TM backup drive should be minimum 2x the total capacity of the drive(s) being backed up.
And yes, you can back up another external drive with Time Machine, as I mentioned.
By default, TM excludes externals, but you can remove the external drive from the exclusion list in Time Machine Preferences > Options.
Back up your Mac with Time Machine - Apple Support:
https://support.apple.com/en-us/HT201250