Hi and welcome Philip,
1. (a) You could tek screw an L shape bracket onto the post and the timber rails.
(b) You could tek screw a flat piece of steel along the inside face of the post, with "wings" sticking out either side - screw rails into that. You will have to use L brackets at the corners.
2. You could use hardwood fence pickets (even treated ones).
3. Leave gaps up to an inch? Maybe have a look around and see what other people have done and then pick a gap you like.