Can not grant permission in mysql
are you sure you're doing what you want? In first query you specified localhost while in second you specified %... so for % you will have to connect to server remotely or using ip.

Check below:

root@server3:~# mysql
Welcome to the MySQL monitor.  Commands end with ; or \g.
Your MySQL connection id is 3797
Server version: 5.5.30-log MySQL Community Server (GPL)

Copyright (c) 2000, 2013, Oracle and/or its affiliates. All rights reserved.

Oracle is a registered trademark of Oracle Corporation and/or its
affiliates. Other names may be trademarks of their respective
owners.

Type 'help;' or '\h' for help. Type '\c' to clear the current input statement.

mysql&gt; create user user1@localhost identified by 'user1';
Query OK, 0 rows affected (0.21 sec)

mysql&gt;
[1]+  Stopped                 mysql
root@server3:~# mysql -uuser1 -puser1
Welcome to the MySQL monitor.  Commands end with ; or \g.
Your MySQL connection id is 3798
Server version: 5.5.30-log MySQL Community Server (GPL)

Copyright (c) 2000, 2013, Oracle and/or its affiliates. All rights reserved.

Oracle is a registered trademark of Oracle Corporation and/or its
affiliates. Other names may be trademarks of their respective
owners.

Type 'help;' or '\h' for help. Type '\c' to clear the current input statement.

mysql&gt; exit
Bye
root@server3:~# fg
mysql
create user user2@'%'; grant select on test.* to user2;
Query OK, 0 rows affected (0.00 sec)

Query OK, 0 rows affected (0.03 sec)

mysql&gt; show grants for user2;
+-----------------------------------------+
| Grants for user2@%                      |
+-----------------------------------------+
| GRANT USAGE ON *.* TO 'user2'@'%'       |
| GRANT SELECT ON `test`.* TO 'user2'@'%' |
+-----------------------------------------+
2 rows in set (0.03 sec)

mysql&gt; \! ifconfig
eth0      Link encap:Ethernet  HWaddr 00:0c:29:db:fe:fe
          inet addr:192.101.86.13  Bcast:192.101.86.255  Mask:255.255.255.0
          inet6 addr: fe80::20c:29ff:fedb:fefe/64 Scope:Link
          UP BROADCAST RUNNING MULTICAST  MTU:1500  Metric:1
          RX packets:250027 errors:0 dropped:0 overruns:0 frame:0
          TX packets:259715 errors:0 dropped:0 overruns:0 carrier:0
          collisions:0 txqueuelen:1000
          RX bytes:105217244 (105.2 MB)  TX bytes:29466344 (29.4 MB)
          Interrupt:19 Base address:0x2024

lo        Link encap:Local Loopback
          inet addr:127.0.0.1  Mask:255.0.0.0
          inet6 addr: ::1/128 Scope:Host
          UP LOOPBACK RUNNING  MTU:65536  Metric:1
          RX packets:158798 errors:0 dropped:0 overruns:0 frame:0
          TX packets:158798 errors:0 dropped:0 overruns:0 carrier:0
          collisions:0 txqueuelen:0
          RX bytes:33510924 (33.5 MB)  TX bytes:33510924 (33.5 MB)

mysql&gt;
[1]+  Stopped                 mysql
root@server3:~# mysql -uuser2 -p -h192.101.86.13
Enter password:
Welcome to the MySQL monitor.  Commands end with ; or \g.
Your MySQL connection id is 3804
Server version: 5.5.30-log MySQL Community Server (GPL)

Copyright (c) 2000, 2013, Oracle and/or its affiliates. All rights reserved.

Oracle is a registered trademark of Oracle Corporation and/or its
affiliates. Other names may be trademarks of their respective
owners.

Type 'help;' or '\h' for help. Type '\c' to clear the current input statement.

mysql&gt; exit
Bye
root@server3:~#