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App Service extracts credentials from the Key Vault with Key Vault reference through the Private Endpoint. The outbound from App Service is through the v-net integration. The Key Vault reference is defined in AppService.bicep.
The problem is that Application Gateway cannot access Key Vault through Private Endpoint to extract SSL certificate in the configuration above, as of August 2022. This is discussed in the forum Application Gateway: Integration with Key Vault does not work #33157. In sum, Application Gateway has to access Key Vault's public IP through Service Endpoint, not through private IP.