You have to go with the BULK INSERT.
INSERT INTO TABLE2 SELECT * FROM TABLE1 ???
INSERT INTO TABLE2 SELECT * FROM TABLE1 requires a single transaction.
Imaging how populated an undo log will be to perform a single rollback.
If that transaction fails and rolls back, you create lots of table fragmentation.
BULK INSERT manually ???
This takes a lot of pressure off the InnoDB Storage Engine for holding large undo information.
EXAMPLE : mysqldump
Have you ever noticed when reloading a mysqldump, hundreds or thousands of rows at a time are being inserted ? If you grep a mysqldump like this:
grep "^INSERT" dump.sql
You will see many lines with INSERTs. Each INSERT is an extended insert by default. That allows 100's of rows to be inserted per INSERT command. So, the principle you already suggested of BULK INSERT 10K rows at a time is perfectly acceptable.