undercabinet lights are usually close to the front of the cabinets, only.

No third image

The green of the two options because the light rail should look continuous from the front.

LIghting mimicking the footprint of the cabinets would be uneven and disproportionately brighter than a surgery table, and just under those cabinets, not elsewhere.

When there is a valance/face frame, UCLs (for 90d downlights) should be placed about 1" back from the front of cabinet to avoid hard shadows. So placement and recess depth here will depend on how you detail the bottom skin and the chosen profile of the diffuser. They also should stop about 1" from a wall where the cabinet abuts to avoid a hot spot.

I think the light rail or valance in my drawing (the green) is being confused with the actual lighting. The lighting would not go all the way around. It would be a single strip 2" back from the front. Here is another drawing with the lighting in red.