Bob:
1) The boats enter the zone overlapped. Therefore, Orange (inside) is entitled to mark-room from Blue (outside) (RRS 18.2b).
2) Orange is also on starboard tack, and is therefore right-of-way boat (RRS 10).
3) Both rules apply (Case 75, as Angelo observes). Blue doesn't owe mark-room to Orange under RRS 10, but under RRS 18.2b. Under RRS 10, she also owes Orange right-of-way (not the same thing as mark-room).
4) Orange is an inside, overlapped, right-of-way boat, so if this mark is by itself, she may sail no farther from the mark than her proper course before she gybes to round (if this mark is the port rounding half of a leeward gate mark, that obligation doesn't apply) (18.4). BUT,
5) Proper course is the course a boat would sail in the absence of other boats referred to in the rule in order to sail the course and finish as fast as possible. (Def: Proper Course)
6) Therefore, a "Wide and Tight" or "tactical" rounding is Orange's proper course (the course she would take if Blue weren't there), and she is entitled to sail that course until her gybe.
7) When Blue fails to keep clear of Orange and give her room to sail her proper "wide & tight" course, she breaks RRS 10.
8) That Blue has room to gybe and make a seamanlike rounding is irrelevant. Orange owes her no room other than room to keep clear of a right-of-way boat changing course (RRS 16.1), which she has clearly received (because nothing prevents Blue from keeping clear of Orange and giving her more room to sail her proper course).
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Penalize Blue

(edited to correct typos.)

Bob, to explain a little further:  Orange is entitled to mark-room, but, perhaps more importantly, she's on starboard track and Blue is on port, so Orange has right of way. That means Blue must keep clear, so if, after position 3, of Orange has to take action to avoid Blue (which it looks as if she did) then Blue broke rule 10 and sound be penalized.  

I'm this situation, Orange cannot just say anywhere she likes, as you might expect a right of way boat to do. Rule 18.4 applies to her and she may sail no further from the mark than her proper course.  There's some question about what that means, but most sailors (and protest committee) accept a "wife and right" course as a proper course. I'm any case, a proper course would be wider than a direct course to the mark, which appears to be what Blue is claiming.  I think that if this protest were heard, it's likely Blue would be disqualified and Orange Wood suffer no penalty.  If the protest committee decides that Orange broke rule 18.4 and Blue broke rule 10, the infringements wouldn't 'cancel it'; both would be disqualified.

Thank you all for your help.

Hi friends......and what about if is a GATE ?
Cheers

If it's a gate, then rule 18.4 does not apply and Orange can steer any course she likes, subject to rules 16 and 17.  In particular, Orange can take the course indicated in the diagram, and of course Blue must keep clear because she will either be on port tack or overlapped to windward.  However, if Blue luffs up and becomes clear ahead, and then the boats become overlapped again (either because Blue bears off into an overlap or Orange sails into one) then Orange must sail her proper course, which most likely is to jibe back to the mark.  Protest committees give wide latitude to boats to decide what course is a proper course, but I think Orange would have some persuading to do, to convince a protest committee that it's her proper course to sail all the way over to the other mark.  If rule 17 does not apply or if it's Orange's proper course to sail to the other mark, Blue will probably enter the zone of that mark clear ahead or overlapped inside, so at the other mark Orange will have to give Blue mark-room.

“If it's a gate, then rule 18.4 does not apply and Orange can steer any course she likes, subject to rules 16 and 17.” ….

…. until one of them reaches the zone of the other gate mark, where likely (given where these boats start) Orange will be owing Blue mark-room. 

Without taking anything from what Rob or Angelo has said, I would submit that as a practical matter, not much would change. I say that because the likelihood that Orange would elect to sail to the other side of the gate is very low, for the reasons Rob explains (she would give away her lead to no purpose). Instead, what might happen is that Orange might luff Blue briefly and briskly (within the limits of RRS 16.1), and then gybe to round the original, port rounding mark.

As we have all said, RRS 18.4 doesn't limit Orange to her proper course at a gate mark, so her luff could come a bit earlier and could be a bit higher than at a single mark, but I can see no advantage to any change more dramatic than that for Orange. The tactical move would be a short luff and then a gybe, placing Blue securely in Orange's wake for the rounding (if these are spinnaker boats, such a move might also aid in a quick and late douse of Orange's spinnaker, and might cause some confusion aboard Blue). Probably the best course for Orange would be to contain that luff and gybe to within what would be her best "Wide & Tight" course, which she is allowed at a single mark anyway.

In short, Orange's course isn't limited at a gate by RRS 18.4, but would be held to the same (or very similar) limits by tactical considerations.