Company XYZ has designed their network to run GRE over IPsec on their Internet-based VPN...

B (Transport Mode in IPsec Phase II):When GRE is running over IPsec,IPsec Transport Modeis often preferred. In Transport Mode, only the payload (GRE encapsulated packet) is encrypted and authenticated, while the original IP header remains untouched. This eliminates redundant IP headers, avoiding duplicate addressing and reducing overhead — optimizing bandwidth efficiency across the Internet VPN.

GRE provides the tunneling function, while IPsec in Transport Mode secures the GRE-encapsulated traffic. Transport Mode is negotiated duringIPsec Phase II (Quick Mode), where actual data protection parameters are established.

Other options explained:

A:Phase I is for establishing secure channels, not for data encapsulation.

C:Tunnel Mode would encapsulate the entire packet (including GRE header), adding unnecessary additional IP headers in this GRE over IPsec design.

D:Tunnel Mode does not apply at Phase I — Phase I is only for IKE negotiation.