Marchers said that in a city with many divisions - Jews and Arabs, religious and secular - the parade's theme of "love without borders" had special resonance.
Participants waved rainbow flags and held aloft arches of colored balloons. Some men wore the skullcaps of devout Jews, while others dressed in tight leather shorts and stiletto heels. The flavor was much more subdued than in the gay pride parades held in recent years in Tel Aviv, Israel's freewheeling metropolis.
"This is the first pride parade in Jerusalem, the capital of Israel. We don't care what people say about us. They speak out of fear and ignorance," said Liad Geller, a 24-year-old airport security guard from Tel Aviv.
Public acceptance of gays has grown in recent years, but Jerusalem is more conservative than other cities, in part because of its large share of residents from more traditional communities - ultra-Orthodox Jews and Palestinians.
"It's more a parade of disgrace than a parade of pride," said Eli Simhiyoff, a city councilor for the ultra-orthodox party Shas.
There were a few tussles between police and a small group of protesters who stood chanting slogans at the marchers. A number of stink-bombs were let off.
Most of the onlookers welcomed the parade. "It's great. A little bit of liberalism in Jerusalem," said shoe shop owner Ruben Salamon, 47.
Marchers said they wanted to show that divisions could be overcome.
"The march comes out of a love for the city and a desire to make it open. Jerusalem is one of the most diverse cities in the world but it is also very segregated," said Hagai El-Ad, one of the organizers.
Jerusalem, holy to three of the world's major religions, is at the center of the Israeli-Palestinian conflict.
"People want to live together without fear and hatred--gay, straight, Palestinian, Israeli, Muslim or Jewish. We as gay people come from all these different communities and so we break through these boundaries in the most direct and honest way," El-Ad said.
Only very few of the marchers were Palestinians, reflecting the strong taboo against homosexuality in Palestinian society. "I feel like I represent every gay and lesbian who will never come out of the closet," said Haneen Maikey, 24, a Palestinian.