What does 'substantial similarity' really mean?
It seems to me that they have decided, for whatever reason, that they could not justify publishing both papers. The two papers are are too 'similar', the alternate method is not sufficient to justify publishing the same result twice (and it is really hard to argue agains this even in the case where the difference between P1 and P2 is significant and offers some interesting insights). 

It may be simply poor/unclear presentation on your part or their failure to see the 'difference' you describe (Maybe you needed to `convince them' by giving explicit reasons on why both should be published, and why both methods are interesting). 

Perhaps, depending on the field and topic, they were more or exclusively interested in the 'end result' and the 'interesting' background and detail regarding P1 versus P2 was beyond their interest. 

It is possible that you could have chosen one or P1 and P2 and briefly discussed the other.