Some 30,000 tourists had arrived for the event in Israel's coastal commercial capital, the municipality estimated, and joined many times that number of revellers dancing aboard floats blasting out electronic music.
Tel Aviv had painted pavements with bright colours and lit up its headquarters with a rainbow flag several days before the celebrations.
The city also welcomed transsexual singer Dana International, winner of the 1998 Eurovision Song Contest, as a guest of honour for Tel Aviv's 16th annual Gay Pride parade.
Drag queens and civil rights activists joined gays, many of them provocatively dressed, as well as heterosexuals who took part in the parade.
"We came to be here, to show that we are proud," said Maor Rozdoba, a 25-year-old local.
"We will still want to establish families and to get married, and to be like everybody else, with equal rights," she said.
Israel is widely seen as having liberal gay rights policies, despite the hostility shown towards homosexuals, particularly men, from the ultra-Orthodox Jewish community.
Israel repealed a ban on consensual same-sex sexual acts in 1988.