How to sync new iPhone with existing iTunes?

I know there are other questions like this but none of them are helping me. I just got the iPhone 4s and already had a Ipod 3g on my itunes but now i want to put the songs from the ipod to the iphone. How?
When i plug in the iphone it gives me two options
1. Set up new iphone
2.restore from the back up of ___.

Which one should i do?

Click Set Up New iPhone
Once that option is selected then you will have the option to name the iPhone. Then you will see many tabs on the screen. One of which is a "Music" tab. Click that tab then select app music in the check box. You may do this for all other tabs.

But having lost and stolen iPhone devices I think you should set up an iCloud account that will be able to sync your contacts, calendars, email, Find My iPhone Safari bookmarks and more.