The word <em>wishing </em>is used as a participle in this case. Although gerunds and participles look the same, they are used in different senses - gerunds generally denote nouns, whereas participles have more of an adverbial meaning.
1. anxious confusion
2. that shared in the general awe and terror
When looking at the options with the context clues, we can eliminate any definitions that have a positive connotation. None of the context clues indicate that consternation would be something that is good. While the first option shows a negative connotation for consternation it is not specific enough to pinpoint a meaning for the word. The context clue "general awe and terror" indicates that there is confusion.
