I put the screw head on the top, and the washer and nut underneath. It's much easier to reach in with the hex driver if the screw is on the top, and the socket head screw fits cleanly in between those plastic wells on the terminal block.
...I feel your pain, though. There are NO hardware stores in my neighborhood that stock metric sizes smaller than M3!
Of course, we don't actually need to use metric for this task. These aren't critical parts; the whole point is to make the terminal block stick to the end of the extruder plate and not fall off. A $4 assortment box of small hardware (metric or SAE) containing screws, nuts, and washers would probably contain everything you need for this.