Simulate Encoder Using Buttons
I would go for digital. Use a 74HC4017 Johnson counter which you reset at the 4th count, so that your sequence goes 0, 1, 2, 3, 0, 1, etc. Wired-OR outputs 2 and 3 with a pair of diodes to create channel A, and 1 and 2 to create channel B. 



The BAT54CW is a double Schottky diode with common cathode, so you'll need only two of them. They also only drop 320 mV maximum at 1 mA, so are suitable for logic powered by 3.3 V or higher.  

Instead of the diodes you can of course use real OR gates.