When writing dialogue in fiction/nonfiction, I'm confused about capitalizing first letters of words in dialogue.?

Which is the correct capital letters? I assumed that after a punctuation mark such a question mark, or exclamation mark for example, that the following letter should be capitalized, but it looks really incorrect to me. Example: 1) Amanda was shocked. "What do you mean, he stole the diamond?" She cried.... show more Which is the correct capital letters? I assumed that after a punctuation mark such a question mark, or exclamation mark for example, that the following letter should be capitalized, but it looks really incorrect to me. Example:

1) Amanda was shocked. "What do you mean, he stole the diamond?" She cried. "I don't believe it for a second!"

What seems right, is:

2) Amanda was shocked. "What do you mean, he stole the diamond?" she cried. "I don't believe it for a second!"

But, following the "rules," I honestly thought the word "she" should be capitalized.

Also:

3) Greg shook his head. "He is a great guy, he could never do something like that!" He yelled. "Not in a million years!"

again, it looks weird. This looks better:

4)Greg shook his head. "He is a great guy, he could never do something like that!" He yelled. "Not in a million years!"


Can anyone shed some light on this for me, when it comes to which of those examples are correct?

Thank you :)
Update: 4) should have been written liks: Greg shook his head. "He is a great guy, he could never do something like that!" he yelled. "Not in a million years!"

with the "lower case" 'h" in "he."
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