When the LORD restored the fortunes of Zion, we were like those who dream.
This Psalm was written after the Jewish people returned from Babylon, not as prophecy of what was to come. The poet exhorts the returning captives to give thanks, making plain that God Himself brought them home, not chance or the favor of men. The abstract noun captivity stands for the concrete captives of Zion.
AI summary
Commenting on Psalm 126:1-6
When the Lord turned again the captivity of Zion, we were like them that dream. Being in trouble, the gracious pilgrims remember for their comfort times of national woe which were succeeded by remarkable deliverances. Then sorrow was gone like a dream, and the joy which followed was so great that it seemed too good to be true, and they feared that it must be...
While the people of Israel were captives in Babylon their harps were hung upon the willow-trees, for then God called to weeping and mourning, then he mourned unto them and they lamented; but now that their captivity is turned they resume their harps; Providence pipes to them, and they dance. Thus must we accommodate ourselves to all the dispensations of Providence and be suitably affected with them.
Commenting on Psalm 126:1-3