I'm running SourceTree 4.2.3 (252) on a 2023 M2 Mac mini under Ventura 13.4 with iterm2 3.4.19 installed. I've been into SourceTree > Settings > General > Miscellaneous > Terminal app and selected "iTerm2" from the list.
If iTerm2 is already running then clicking the "Terminal" button on the SourceTree toolbar works as expected - a new iTerm2 window opens up and runs a "cd" command to get to the repository clone's gitroot directory.
However, if iTerm2 is not running, I get a popup dialog saying "There was a problem opening this repository in iTerm2". iTerm2 is launched and a window opens, but there's no "cd" command, so I guess there's a timing problem in passing that string to the shell if the app is only just starting up.
I can work around this by going to iTerm2 > Settings > General >Closing and unticking "Quit when all windows are closed". That way iTerm2 keeps running after I've tidies up all my various windows, so it's ready and able to take the "cd" command at launch from SourceTree.