Issue: In a mixed language environment, where the domain name contains international characters, you run the New iSCSI Virtual Disk Wizard from a domain-joined Windows Server 2012 computer that uses a different character set. In the wizard, you create a new iSCSI target. On the Specify access servers page, when you try to add an iSCSI initiator by using the Query initiator computer for ID option, you select a computer, where the fully qualified domain name (FQDN) includes the domain with international characters. When you click OK, you receive an error message that is similar to the following:
Unable to determine IQN for <FQDN>.
This issue also occurs when you use the Query initiator computer for ID option in the following locations:
The Import iSCSI Virtual Disk Wizard
The Assign iSCSI Virtual Disk Wizard
The Initiators tab of the Properties page for an iSCSI target
Workaround: To work around this issue, follow these steps on the computer on which you are trying to add an iSCSI initiator:
Open the Local Group Policy Editor (Gpedit.msc).
Under Local Computer Policy, expand Computer Configuration, Windows Settings, and then click Name Resolution Policy.
In the Create Rules area, click Suffix, and then enter the namespace to which the rule applies (for example, contoso.com).
On the Encoding tab, select the Enable Encoding check box, and make sure that UTF8 without Mapping is selected.
The rule appears in the Name Resolution Policy Table.
Click Apply, and then close the Local Group Policy Editor.
Well, honestly speaking, this was the exact thing I did before posting my question here ( I googled the issue and found the page with exactly the same context). However, it didn't workout even after I created the rule.
Another weird issue during iSCSI configuration was that whenever I selected DNS name as the method to identify the initiator, the iSCSI initiator on the destination computer could not detect the disk (nor the server itself), even though there wasn't really a connectivity issue between the two computers.