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You can follow these steps to set up your Palo Alto VM-Series firewall and validate that packets are indeed sent to the VM-Series for VPC-to-VPC inspection.
You must first have launched a firewall instance in your AWS cloud portal.

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Resetting the VM-Series Password

You must download the access key to change the password for the Palo Alto VM-Series. You do this from the Security > FireNet tab. Firewall Download Key
After you download the .pem file, change the file permission to 600. If you are asked to enter a password during the login, the VM-Series is still not ready. Wait and try again. It usually takes up to 15 minutes for the VM-Series to be ready. When the VM-Series is ready, you will no longer be prompted for a password.
For metered AMI, open a terminal/command prompt and run the following: 
ssh -i <private_key.pem> admin@<public-ip_address>
configure
set mgt-config users admin password
commit
For BYOL, open a terminal/command prompt and run the following: 
ssh -i <private_key.pem> admin@<public-ip_address>
configure
set mgt-config users admin password
set deviceconfig system dns-setting servers primary <ip_address>
commit
You can then terminate the SSH session.

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Logging into the VM-Series

Click the Management UI link on the FireNet tab (shown above) to access the UI of the Palo Alto VM-Series firewall. Your login information is “admin” and the password you configured in the previous section.

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Dynamic Updates

To make sure your firewall is up-to-date, in your firewall UI you can navigate to Device > Dynamic Updates and click Check Now. You can then download and install the latest versions of Applications and Threat Wildfire updates.

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Configuring VM-Series Ethernet 1/1 with WAN Zone

WAN is Wide Area Network. Ethernet 1/1 is a data plane interface assigned to the WAN zone. Provides external access to the Internet.
  1. Once logged in, click on the Network tab to see a list of ethernet interfaces. Click ethernet1/1 and configure as per the following screenshot.
  2. Select the Network tab.
  3. Click ethernet1/1.
  4. Select layer3 for Interface Type.
  5. Select the Config tab in the popup Ethernet Interface window.
  6. Select default for Virtual Router at the Config tab.
  7. Click New Zone for Security Zone to create a WAN zone.
  8. At the next popup screen, name the new zone WAN and click OK.
New Zone AWS
  1. Select the IPV4 tab in the popup Ethernet Interface window.
  2. Select DHCP Client.
IPv4 AWS
  1. Clear the Automatically create default route pointing to default gateway provided by server checkbox as shown below.
  2. Click Commit. Once Commit is complete, you should see the Link State turn green at the Network page for ethernet1/1.

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Configuring VM-Series Ethernet 1/2 with LAN Zone

  1. Repeat the steps from Configuring VM-Series ethernet1/1 with WAN Zone section above for ethernet1/2. Name the new zone LAN.
  2. Click Commit. Once Commit is complete, you should see the Link State turn green at the Network page for ethernet1/2.

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Configuring Allow Outbound Policies

  1. Navigate to Policies > Security > Click Add.
  2. Name the policy “Outbound,” then select the Source tab.
  3. Select LAN zone > Destination tab.
  4. Select WAN zone > Click OK.

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Configuring NAT for Egress

Complete the following steps to enable NAT, to test Egress of the firewall.
  1. Navigate to Policies > NAT and click Add.
  2. Select the General tab and name the policy.
  3. Click Original Packet.
  4. At Source Zone, click Add, and select LAN.
  5. At Destination Zone, select WAN.
  6. At Destination Interface, select Ethernet1/1, as shown below.
NAT Original Packet
  1. Click Translated Packet. At Translation Type, select Dynamic IP And Port.
  2. At Address Type, select Interface Address.
  3. At Interface, select ethernet1/1, as shown below.
NAT Translated Packet

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Setting up API Access

Follow the instructions in Setting up API Access to Palo Alto Networks VM-Series to enable API access.

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View Traffic Log

You can view if traffic is forwarded to the firewall instance by logging in to the VM-Series console.
  1. Click Monitor.
  2. Start pinging packets from one Spoke VPC to another Spoke VPC where one or both of Network Domains are connected to Firewall Network Domain.