What happens to voltage source if I take out both volt and current with separate circuit using diodes and then combine both separate circuits?
I have 3.8V and 1.2A battery.


OK, what that means is that the battery has a nominal output voltage on 3.8 V when the terminals are open and can push 1.2 A of current when the terminals are shorted. These conditions are not true at the same time.

In other words, there's some V/I graph that describes the relationship of voltage to current (given some charge level; it falls off as the battery discharges) that is monotonically decreasing, and all you know are that the points (3.8 V, 0 A) and (0 V, 1.2 A) are on that curve.


  I will use a step up circuit that gives 5v and some current output using 2v in(from my battery).


This sounds like you're confused. A step-up switching power converter will need to take 3.8 V in (nominal) and output 5 V in this case. The output current maximum will depend on the power available from the battery. Remember that V/I graph I mentioned? the circuit will settle at some combination of V and I, and the power delivered (P_IN = V_IN * I_IN) must be greater than the power out (P_OUT = V_OUT * I_OUT).


  Then i will use diode(say zener) to take voltage only(5v).


A Zener diode, properly connected, simply sinks enough current through itself to bring the voltage across its terminals down to its Zener voltage. If there isn't that much voltage across it in the first place, it will act like an open circuit. If forward biased, it acts like a regular diode with a small voltage drop.


  I will also use a step down circuit that gives 1v and 2A output using 3.5v in(from my battery).


So this is in parallel with your step-up circuit? Again, 1 V is the nominal output and 2 A is the maximum the converter can deliver. Further, the power from the battery needs to be enough for both converters; one converter can starve the other, and if that isn't enough power, it'll pull the battery voltage down to UVLO level.


  Then i will use another blocking diode to take current(2A) only.


Okay, at this point I have no idea what you're doing and I'm pretty sure you don't either. Can you draw a schematic? i have no idea how that alibaba thing hooks up.