You need to have the approval process setup as a sub process. If level 1 rejects the task you set a process variable (i.e. approved = false) and simply exit. Now, setup a simple conditional on exit of the approval sub process to check if the activity was approved or not. If not, handle (i.e. back to initiator) otherwise, move on with the process.
There are other ways of handling, i.e. throw an exception which sends you back to the initiator, but the above will be the easiest to read and hence maintain in the future.
The other nice thing about setting this up as a sub process is that you can reuse the logic in other processes that need this style of approval.
Hope this helps.