You've configured the same subnets at each site across a routed link/interface? Looks like you [think that you] want to bridge the traffic rather than route it. If that's the case, you need configure bridging. Configuring Transparent Bridging
Bridging
Bridges connect and transfer data between LANs. The following are four kinds of bridging:
Transparent bridging -
found primarily in Ethernet environments, and is mostly used to bridge networks which have the same media types. Bridges keep a table of destination addresses and outbound interfaces.
Source-Route Bridging (SRB) -
found primarily in Token Ring environments. Bridges only forward frames based on the routing indicator contained in the frame. Endstations are responsible for determining and maintaining the table of destination addresses and routing indicators. For more information, refer to Understanding and Troubleshooting Local Source-Route Bridging.
Translational bridging -
used to bridge data between different media types. This is typically used to go between Ethernet and FDDI or Token Ring to Ethernet.
Source-Route Translational Bridging (SR/TLB) -
a combination of source-route bridging and transparent bridging that allows communication in mixed Ethernet and Token Ring environments. Translational bridging without routing indicators between Token Ring and Ethernet is also called SR/TLB. For more information, refer to Understanding and Troubleshooting Source-Route Translational Bridging.
Bridging happens at the data-link layer, which controls data flow, handles transmission errors, provides physical addressing, and manages access to the physical medium. Bridges analyze incoming frames, make forwarding decisions based on those frames, and forward the frames to their destinations. Sometimes, such as in SRB, the frame contains the entire path to the destination. In other cases, such as in transparent bridging, frames are forwarded one hop at a time toward the destination.
Bridges can be either remote or local. Local bridges provide direct connections between many LAN segments in the same area. Remote bridges connect LAN segments in different areas, usually over telecommunication lines.
Best Answer
I modified your ascii art a litte to reduce scrolling... It sounds like you're saying that you can't reach reach N1 from N2...
Classful routing protocol overview
RIPv1 is a classful routing protocol... as such, it doesn't associate netmasks with routes when they are advertised. Classful routing protocols do a couple non-intuitive things...
Interface netmasks
To make your topology work, your masks will have to match on all RIPv1 interfaces, unless you use a classless routing protocol (such as RIPv2, EIGRP, OSPF, or ISIS). If you need to use RIPv1, then reconfigure your topology such that all interfaces have matching masks, like this...
Bonus material: RIPv1 Auto-summarization Example
Since this also tends to trip people up, I am including an example of RIPv1 auto-summarization dynamics.
When I mention major network boundaries below, I'm talking about the classic definitions for Class A, Class B, and Class C IPv4 networks...
Moving on to the RIPv1 auto-summarization example... I will use matching /24 interface netmasks for simplicity.
R1 and R2 are connected by subnets of the 1.0.0.0/8 major network, so 1.1.1.0/24 and 1.1.2.0/24 are advertised between R1 and R2; however, the link between R2 and R3 is not in 1.0.0.0/8, therefore R2 performs automatic summarization of subnets of 1.0.0.0/8 and subnets of 172.16.0.0/16.
When subnets of a major network are summarized, they get hidden by the summarized route... This happens at R2 when 1.1.1.0/24 and 1.1.2.0/24 are summarized to 1.0.0.0/8. Cisco routers cannot disable auto-summarization under RIP version 1 (but they can for RIPv2).