I am trying to fix a MacBook 2,1 after the startup disk was formatted. I have a Lion 10.7.2 dmg mounted on a USB stick and also on DVD. When I boot and press Option key, I can select either the USB or DVD. However after the loading message and Mac logo disappear from the screen, I end up on Mac OS X Utilities.
If I open Startup Settings I can again select the OS on the USB. In short I can't install macOS from the USB or DVD to the internal HD despite it showing up on startup selection.