And what happens if the t2 block is replaced with a seperate stored procedure and an error occurs inside the stored procedure?

CREATE PROCEDURE [dbo].[proc1]

AS

BEGIN TRAN t1

UPDATE table1 SET key = 1 WHERE id = 100

IF @@error 0

ROLLBACK TRAN t1

EXEC proc2

IF @@error 0

ROLLBACK TRAN t1

UPDATE table1 SET key = 3 WHERE id = 100

IF @@error 0

ROLLBACK TRAN t1

COMMIT TRAN t1

GO

---------

CREATE PROCEDURE [dbo].[proc2]

AS

UPDATE table1 SET key = 2 WHERE id = 100

GO

Thanks.