Conjunction, we with definite article (ha) and common noun ('aretz), both singular, absolute.
When the conjunction we appears with a noun at the beginning of a sentence, it always has a disjunctive sense; in this case it means that v2 is a separate sentence from v1; the two verses cannot be read as indicating consecutive actions.
The word ha'aretz (without the conjunction, but with the direct object marker, 'et) has already appeared in the previous verse as part of a merism with hashshamayim. Here it appears on its own, and can only refer to the Earth. While the word hashshamayim would appear again and again in the rest of this chapter, it appears only incidentally as an extension of what happens on the Earth. Gen 1 is decidely earth-bound in its perspective.
Open Alberith Hebrew Wordbook on we, 'aretz
Open BDB on we, 'aretz
©ALBERITH
181020lch