In Iceland how do they greet one another?

Answer 1

The correct way to greet someone in Icelandic is blessaður (to a male) and blessuð (to a female), or sæll (to a male) and sæl (to a female).

Blessaður and blessuð both mean 'blessed', as in 'hann er blessaður'> 'he is blessed', or 'vertu blessaður', which is the formal correct way to say goodbye, as it means 'be blessed'.

Sæll and sæl both mean 'happy', as in 'hann er sæll'> 'he is happy', or
'vertu sæll', which basically, in terms of expression means goodbye, but translates to 'be sæll', or 'be happy'. (The words bless or bæ are more common as a goodbye...)

Other, sometimes more casual (though saying blessaður is also rather casual) ways to greet are hæ meaning and pronounced as hi, halló, and Icelandic translations of the correct way to greet in English: good mourning, good afternoon and good evening.

Note that hæ and bæ (corresponding to English hi and bye) is often frowned upon, especially among older people. The mentioned above are preferred.
The words hæ and bæ likely entered use with Icelanders in or shortly after the Second World War, *if anyone's interested*

Answer 2

Halló.