Safari Favorites and Bookmarks icons greyed out

Can you open bookmarks from bookmarks folder?

Enable Safari Develop menu in the menu bar.

https://support.apple.com/guide/safari/use-the-developer-tools-in-the-develop-menu-sfri20948/mac

Click Develop in the menu bar and choose "Empty Caches".

Test.

If the step posted above doesn't help:

      Download EtreCheck: https://etrecheck.com/maspro  and post the report here.

      Click, “Free Download” button and then  “Click to download” button.

      Open Downloads folder, click on it to open, and then select ”Open”.

      Click on the bouncing  EtreCheck icon in the Dock.

      “Choose a problem” from the popup menu box, and then “Start EtreCheck” in the dialog.

      Click “Share Report” button in the toolbar, select “Copy report” .

      Paste the report when you reply.

Go step by step and test.

1.Restart your Mac

Launch Safari holding the Shift key down. 

    Test.

2. Startup in Safe Mode   https://support.apple.com/lv-lv/HT201262

    Login to your account.

    Test.

    To exit Safe Mode, click the  in the menu bar and then “Restart”.