Issue has been resolved. Connection has been established.
Solution:
1. remove Namespace in claim definition in Azure AD (client application doesn't deal with it).
2. In the Client definition in Keycloak turn on 'Sign documents' to get rid of error of signature missing in SAML Response.
3. in IDP definition set 'First login flow' to the ootb (restore it to that first) 'First login flow', Post login flow to 'None' and Sync mode to 'Import'.
4. In IDP definition Mappers set the mandatory attributes as basic as possible (becasue in step 1, most is done in AAD already):
*) Sync mode override to "Inherit"
*) Mapper type to "Attribute Importer"
*) Name Format to "ATTRIBUTE_FORMAT_BASIC"
and exact name and casing as required by the client application.
Regards,
Robbert