Is div1 also physically bigger than div2? This
implies that it is.
I ask because I've got a nasty feeling the hover: business might annoy and/or confuse the user, depending on exactly what you're changing.
Is div2 above or below div1? I mean of course in the z dimension, not vertically on the monitor ;) Will a hover in the area covered by div2-- the inner div-- be recognized as a hover over div1 --the outer div? The answer might be either Yes or No. The important thing is to make sure that the result agrees with your intention ... in all current browsers.