Upgrade OpenTelemetry and Azure packages to latest compatible versions

[Copilot]

This PR addresses the failed Dependabot PR #2619 by upgrading OpenTelemetry and Azure packages to their latest compatible versions.

Problem

The original Dependabot PR attempted to upgrade opentelemetry-sdk from 1.31.1 to 1.35.0, but failed CI due to dependency conflicts. Investigation revealed that Azure Monitor packages constrain opentelemetry-sdk to <1.32,>=1.28.0, making version 1.35.0 incompatible.

Root Cause

The dependency conflict stems from:

• azure-monitor-opentelemetry requiring opentelemetry-sdk<1.32,>=1.28.0
• microsoft-kiota-* packages requiring opentelemetry-sdk>=1.27.0
• Dependabot targeting opentelemetry-sdk==1.35.0 which exceeds the Azure constraint

Solution

Instead of forcing an incompatible upgrade, this PR:

1. Upgrades all packages to their latest compatible versions using uv pip compile
2. Keeps opentelemetry-sdk==1.31.1 (the latest version supported by Azure packages)
3. Significantly upgrades related dependencies:
   • azure-monitor-opentelemetry: 1.6.1 → 1.6.12
   • azure-monitor-opentelemetry-exporter: 1.0.0b32 → 1.0.0b40
   • azure-core: 1.30.2 → 1.35.0
   • azure-identity: 1.17.1 → 1.23.1
   • 30+ other dependencies to latest versions

Verification

• ✅ Installs successfully with uv pip install -r requirements-dev.txt
• ✅ Passes all linting checks (ruff check .)
• ✅ Passes formatting checks (black . --check)
• ✅ Passes type checking (mypy)
• ✅ Core package imports work correctly

Installation Command

To verify the upgrade works in a fresh environment:

python -m venv .venv
source .venv/bin/activate  # or .venv\Scripts\activate on Windows
uv pip install -r requirements-dev.txt

This provides a substantial dependency refresh while maintaining compatibility. Future upgrades to opentelemetry-sdk 1.35.0+ will be possible once Azure Monitor packages release versions with relaxed constraints.

Fixes #2633.

Warning

Firewall rules blocked me from connecting to one or more addresses

I tried to connect to the following addresses, but was blocked by firewall rules:

• openaipublic.blob.core.windows.net
  • Triggering command: python -m pytest tests/ -k not test_app --maxfail=3 -v (dns block)

If you need me to access, download, or install something from one of these locations, you can either:

• Configure Actions setup steps to set up my environment, which run before the firewall is enabled
• Add the appropriate URLs or hosts to the custom allowlist in this repository's Copilot coding agent settings (admins only)

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