XA Two Phase Commit and execution in Prepare Phase?

I am trying to understand two-phase-commit and it is not clear to me when each local site executes its portion of the distributed transaction.

Does that happen before the prepare messages are sent. That is does it happen before the two-phase-commit xa protocol is even run?

Or does each site executes its portion of the distributed transaction after receiving the prepare message, meaning the prepare message itself also includes the transaction query to be executed?

Yes, execution happens before prepare messages are sent. You should assume that the entire 2PC protocol runs within the commit() operation after everything has already been executed. Consider the following imagined trace of a distributed transaction that eventually commits. Indentation means procedure nesting:

transactionalOperation() is a procedure at some client site
    begin() is a remote invocation to the coordinator
        create global XID
        return global XID
    XID is added to the thread-local context at the caller
    executeOperation(params) is a remote invocation to a participant site
        XID is implicitly propagated to the server side thread
        inform coordinator that this site is a participant
        execute the operation! (acquiring locks)
    ... more operations ....
    commit() is a remote invocation to the coordinator
        XID is implicitly propagated to the server side thread
        -------------- 2PC starts here ----------------
        for all registered participants:
            prepare(XID) is a remote invocation to each site
                make sure that the transaction can be committed,
                usually by writing and flushing a log 
                return OK
        gather decisions
        for all reguistered participants:
            commit(XID) is a remote invocation to each site
                log transaction commit
                (release locks)
        -------------- 2PC ends here ----------------
    XID is removed from the thread-local context at the caller
    transaction is complete!

Actually, as you can see, the prepare message will be sent by the coordinator only to those sites that have previously executed something within the context of such transaction, and thus have previously registered as participants in that transaction.