The scanning tunneling microscope (STM) is a fascinating tool used to perform chemical processes at the single-molecule level, including bond formation, bond breaking, and even chemical reactions. Hahn and Ho [J. Chem. Phys. 123, 214702 (2005)] performed controlled rotations and dissociations of single O2 molecules chemisorbed on the Ag(110) surface at precise bias voltages using STM. These threshold voltages were dependent on the direction of the bias voltage and the initial orientation of the chemisorbed molecule. They also observed an interesting voltage-direction-dependent and orientation-dependent pathway selectivity suggestive of mode-selective chemistry at molecular junctions, such that in one case the molecule underwent direct dissociation, whereas in the other case it underwent rotation-mediated dissociation. We present a detailed, first-principles-based theoretical study to investigate the mechanism of the tunneling-induced O2 dynamics, including the origin of the observed threshold voltages, the pathway dependence, and the rate of O2 dissociation. Results show a direct correspondence between the observed threshold voltage for a process and the activation energy for that process. The pathway selectivity arises from a competition between the voltage-modified barrier heights for rotation and dissociation, and the coupling strength of the tunneling electrons to the rotational and vibrational modes of the adsorbed molecule. Finally, we explore the "dipole" and "resonance" mechanisms of inelastic electron tunneling to elucidate the energy transfer between the tunneling electrons and chemisorbed O2.