To set up a CloudFront distribution for an S3 bucket that hosts a static website, and to allow only specified IP addresses to access the website, the following steps are required:

Create a CloudFront origin access identity (OAI), which is a special CloudFront user that you can associate with your distribution. An OAI allows you to restrict access to your S3 content by using signed URLs or signed cookies. For more information, see Using an origin access identity to restrict access to your Amazon S3 content.

Create the S3 bucket policy so that only the OAI has access. This will prevent users from accessing the website directly by using S3 URLs, as they will receive an Access Denied error. To do this, use the AWS Policy Generator to create a bucket policy that grants s3:GetObject permission to the OAI, and attach it to the S3 bucket. For more information, see Restricting access to Amazon S3 content by using an origin access identity.

Create an AWS WAF web ACL and add an IP set rule. AWS WAF is a web application firewall service that lets you control access to your web applications. An IP set is a condition that specifies a list of IP addresses or IP address ranges that requests originate from. You can use an IP set rule to allow or block requests based on the IP addresses of the requesters.For more information, see Working with IP match conditions.

Associate the web ACL with the CloudFront distribution. This will ensure that the web ACL filters all requests for your website before they reach your origin. You can do this by using the AWS WAF console, API, or CLI. For more information, see Associating or disassociating a web ACL with a CloudFront distribution.

This solution will meet the requirements of allowing only specified IP addresses to access the website and preventing direct access by using S3 URLs.

The other options are incorrect because they either do not create a CloudFront distribution for the S3 bucket (A), do not use an OAI to restrict access to the S3 bucket ©, or do not use AWS WAF to block traffic from outside the specified IP addresses (D).

Verified References:

https://docs.aws.amazon.com/AmazonCloudFront/latest/DeveloperGuide/private-content-restricting-access-to-s3.html

https://docs.aws.amazon.com/waf/latest/developerguide/web-acl-ip-conditions.html