Where is Link at with Ilia in this screenshot?

In the screenshot below, there is a brown wooden post behind them. I think the item they are giving out is a white horseshoe. But where is this place?

Where is this location?

2 Answers

The screenshot was taken at Kakariko Village inside the house of the village shaman, Renado, after showing the item in question to Ilia

after which she regains her memory and reveals to Link, that this item called the Horse Call was meant to be a gift from her to him.

It is not a horseshoe, but a flute which can be used to call Epona without having to find patches of Horse Grass.

The item in question is actually Epona's horse call. It's the final link in a quest to restore Ilia's memory.

At this point in the story, Ilia is in Sanctuary, in Kakariko Village.
(Sorry, I can't find a corroborating interior shot)