Issue

When Setting up Hybrid Mode the Hybrid Setup Wizard reports that “Federation with Office 365 is not configured”

Of course I have checked and double checked that the configuration has been done as expected. In fact I am able to see presence for users on O365 from other tenants.

Cause

I suspect the underlying cause has to do with the Blocked\Allowed Domains list for the On Premise deployment does not EXACTLY match that of yout online tenant

Reference
https://technet.microsoft.com/en-us/library/jj205403.aspx?f=255&MSPPError=-2147217396

Solution

Honestly, this error can often be ignored and you will notice that if you simply click next that the reported issue is auto-magically resolved. That’s because the wizard actually tries to setup hybrid and resolve any issues.

That said, I have had to apply a “fix” at times

Simply remove (temporarily – so don’t panic) any entries you may have in the Allow or Block table in the Federated Domains tab.

Now run through the Hybrid Setup Wizard again and (in my case anyway) the error has disappeared.

NOTE You may need to allow for a few minutes for the change to replicate before trying the Hybrid Setup Wizard again.

You can now re-add the Allow and Block entries in the SIP Federation Domains tab.