No problem. the valve handle is how you set which line the flow goes to.
Looking at your pic, although I can"t really see the handle at the top red line coming out of the water heater, the handle appears to be in line with the line coming out of the tank. This is how you want it for normal use.
However, it appears the handle on the bottom blue line is parallel with the line AND the white bypass line. This will have the water heater inlet shut off, and is not how you want it for normal use. You need to turn that handle 90 degrees to be in parallel with the blue line entering the water heater. It (blue line) will then match the position of the top handle (red line)