You can try this:
DECLARE @CurrentPK INT
SELECT @CurrentPK(MAX(PRIMARY_KEY)
SELECT column1, ROW_NUMBER() OVER (ORDER BY column1) AS 'RowNumber'
INTO #temp
FROM Table2
INSERT INTO TABLE1
(COLUMN1, PRIMARY_KEY)
SELECT COLUMN1,@CurrentPK+RowNumber
FROM #temp
Of course to prevent race conditions, you should put this in a transaction and explicitly lock out other inserts happening at the same time. Your best bet is a stored proc with try6 catch blocks as well as transaction processing.
I want you to understand that it is not an option to avoid transactions in this case. If you do not specifically use transactions, you will have times when two tprocessses try to use the same id number. In fact, that is why the method of getting the last id number not recommednd as it is all too easy to create database problems using it. I know you are stuck with this, but at least learn to never use this sort of short-sighted antipattern in the future.