After restore from iCloud, what do I choose when i plug into itunes?

You can first restore from iCloud. It'll immediately start download your Apps. When finish connect to iTunes and sync your musics.

If your primary concern is preserving your contacts I suggest you use the app My Contacts Backup. This will back up your contacts as an attachment to an email. Send this email to yourself. If something goes wrong and you lose some or all of your contacts, you can open this email on your phone and tap the attachment to re-import them to the phone. I would then, prior to connecting your phone, open iTunes on your computer and go to Preferences, and on the Devices tab check "Prevent...from syncing automatically". You can then connect your set up the phone as new or restore it from you previous backup if you have one. Then go the the Info tab of your iTunes sync settings and uncheck Sync Contacts, review your other sync settings and when you have them the way you want, click Apply to sync your phone. This should return your music and other iTunes media to your phone. Then go back to iTunes>Preferences>Devices and re-enable automatic syncing. Now disconnect your phone and turn on iCloud syncing for Contacts if not already on (if prompted, choose merge). If your contacts were somehow deleted from the phone in this process, use the My Contacts Backup email to import them to your phone again.

If you set up your phone as new you will still be able to sync back all your apps, music and other iTunes media to your phone. You will, however, lose your app data, text message conversations, etc. unless you choose to restore to your older backup.

On your question about the backup, iTunes will create/update your backup as the first step in the sync process when you sync your phone. The only thing that would prevent this is if you are backing up your phone to iCloud. If you are, then the sync process no longer automatically backs up your phone to your computer. (You can always still manually back it up by rignt-clicking on the name of your phone in iTunes and selecting Backup, it just doesn't happen automatically when you sync.)

You're welcome.