Which tunneling mechanism provides confidentiality as well as tunneling capabilities?

MPLS L3VPN provides traffic separation and tunneling through label switching but does not encrypt data and therefore offers no confidentiality.

IPsec ESP (Encapsulating Security Payload) encrypts the packet payload, providing confidentiality, and operates in tunnel mode to encapsulate the entire original IP packet inside a new IP header. This combination of encryption and encapsulation makes it the only option that satisfies both the tunneling and confidentiality requirements simultaneously.

L2TPv3 is a Layer 2 tunneling protocol that provides encapsulation but has no built-in encryption or confidentiality mechanisms.

IPsec AH (Authentication Header) provides data integrity and origin authentication but explicitly does not encrypt the payload, so it provides no confidentiality.