> Don't think the second train saw a green signal. They were in the middle of the block, while the first train was waiting just before the exit of the block (with a green signal ahead).

If the first train was really just before the exit of a block, then it's pretty safe to assume that the second train saw the corresponding distant signal.

> the Spanish system allows the controller to override the point-based rules

Every system allows that, it is required in order to be able to operate a railway network.

> What I'm gathering from other sources is that the Spanish system allows the controller to override the point-based rules and provide manual clearance

What actual happened is my speculation, the explanation how LZB works is not. It can be the case, that they messed up while issuing manual movement authorities, but if they did not notice that they need to switch to manual operation, they will have caused a crash.