Men and women in colourful costumes, including several dressed as samba dancers, paraded through the streets on motorised floats or sashayed alongside.
One float depicted a gym, with musclebound young men in shorts, and another held drummers and dancers.
Loudspeakers blasted dance tunes and favourites from last month's Eurovision song contest, which was held in Tel Aviv.
With the temperature Friday at a balmy 28 degrees Celsius (82 degrees Fahrenheit) clothing was for the most part minimal.
Rainbow flags fluttered in the Mediterranean breeze alongside those of Israel and the United States.
Downtown streets were closed to traffic for the afternoon and a police statement said that "hundreds" of officers would secure the route of the parade.
According to the Tel Aviv municipality, 250,000 people participated in the march, which weaved though the city during the afternoon and ended at the seashore with a sunset beach party.
Mayor Ron Huldai said his city was "proud" of its "large and diverse LGBTQ population."
"The Tel Aviv Pride parade is not just a celebration, but an important declaration of support and an opportunity to promote equal rights for all," he said in a statement.
Israel has the most open attitude to homosexuality in the Middle East, with a large and influential gay community.
Last week Prime Minister Benjamin Netanyahu announced the appointment of Israel's first openly gay cabinet minister.
But many analysts saw Amir Ohana's appointment as justice minister months ahead of September 17 elections as strictly politically motivated, since he has expressed support for a proposal that would result in Netanyahu being granted immunity from prosecution.
Netanyahu faces possible indictment for corruption in the months ahead.
A 2015 gay pride parade in conservative Jerusalem ended in tragedy when an ultra-Orthodox Jewish man stabbed a 16-year-old girl to death and wounded several others.