You spawn the Block exactly on top of Player 1.
There is no space between them and their Bounding Boxes have no space between eachother. That is why the engine detects them as colliding and since your Player 1 cannot move through solids, it "freezes".
Lowering the Bounding Box on Player 1 by a single pixel from the Bounding Box options fixes this. You can also do the opposite, raise the bounding box of the Block by 1 pixel.
Then you can move through freely, while it still looks like they're exactly ontop of eachother.