Two items here.

oVirt version 3.6.4  Fresh install, not an upgrade.

First, I noticed this issue when I did an install on a test machine but I didn't have the data to present.  Because of that and some other posts dealing with the network issue I kept notes when I installed on my production system.   I'm doing a hosted-engine setup.

As part of the preparation I did the following before installing and deploying.

* Removed NetworkManager with yum remove NetworkManager

* The NIC that will be used for the oVirt management NIC is connected to a switch port expecting VLAN 50 so I set up a VLAN50 ifcfg file.

* The IP address of the  server, prefix, gateway, and TWO DNS servers were setup in the ifcfg file. and name resolution worked.  I could ping the host by name as well as the oVirt Engine VM which was in DNS so the name resolved but obviously nothing would reply.  Other servers and workstations could resolve the host and engine names.

1.  On the host I ran hosted-engine --deploy and installed the OS (Centos 7 (1511) on the Engine VM.  I rebooted the Engine VM, told the deployment that the Engine VM was running and it then continued and deployment told me to install the engine on the Engine VM.

2.  I updated the Engine VM via yum update,  installed the oVirt repositories, and ran the engine-setup which completed successfully.

3. I then went back to the host and told it the Engine was setup and at this point things went bad.  The deployment started whining about not being able to resolve myenginevm.mydomain.com host, did cleanup, per-termination, termination, and said the deployment failed and the system was unreliable, fix it,  whine, whine, whine.

4.  I tried a ping on myenginevm.mydomain.com and it failed.

What I found was that when the bridge was created (ifcfg-ovirtmgmt) the DNS servers were left out!  They were in the original NIC ifcfg file but it appears the deployment didn't bother to bring them over to the bridge ifcfg.  I find this very puzzling since the deployment insists on FQDNs so it should be smart enough to bring over the DNS server settings and not leave them out.  My /etc/resolv.conf file also had no DNS servers in it.

I added the DNS server to the bridge ifcfg file, did a systemctl restart network and all is well again.  The host can ping the VM! 

However, the deployment thinks it failed and I can not restart the Engine VM.  I tried a reboot, made sure the ovirt daemons were running but if I try and do anything such as hosted-engine vm-start I get  "Unable to read vm.conf, please check ovirt-ha-agent logs".

Second, I think that having the deployment fail simply because it can not contact the Engine VM is a very huge error/bug/whatever - its silly.  The deployment went well, the VM exists and is running but due to the deployment messing up the DNS servers it just can't find it.  The deployment should first, handle the name server setup correctly and second fail gracefully..  

I rebooted the server but still get the error about not being able to read vm.conf.  At this point I now have to run through the entire deployment again just because one phase messed up unless there is a way to work around this.  However, in the work that I've done with oVirt I've notice the deployment is not real robust and when it encounters errors that should allow it to recover.  I suggest that consideration be given to making the deployment smarter and more robust.