Yes, Mallory just pretends to be Alice to Bob and pretends to be Bob to Alice, and they both establish an encrypted connection to Mallory using Diffie-Hellman keys derived from his secrets instead of each other's. Mallory has keys for both of their separate connections at this point and can do whatever he wants. That's why TLS only uses Diffie-Hellman for perfect forward secrecy after Alice has already authenticated Bob. Even if the authentication key gets cracked later Mallory can't reach back into the past and MITM the connection retroactively, so the DH-derived session key remains protected.