We are experiencing this issue also. One account is on Nintendo Switch, the other is an iOS device. They friended but after months of playing together accidentally blocked each other once, and now they cannot unblock or unmute each other.
Nothing helps. We restart Minecraft on both devices. We remove friend and add friend back. We unmute and/or unblock, maybe remute and/or reblock and then undo again. Try from both devices. No matter what, every time we go back to the find friends screen, the accounts are blocked for each other. We don’t want to lose their worlds or accounts or achievements or other friends and start over.
It’s very frustrating for our family. We will probably play a lot less Minecraft until this is resolved.
We discovered a work-around to resolve this issue on Nintendo Switch on a case-by-case basis. Go to the friend’s screen with the unblock switch. Toggle the switch to unblock, but don’t press B or any other button, and instead immediately press the Home button on the Switch controller. You may have to close the software as well. But when you return to Minecraft the friend unblocked status should remain intact.