In the past it was only pro-Palestinian activists who accused the government of pushing its reputation for sexual tolerance as a smokescreen, a tactic referred to as "pinkwashing".
The LGBT community was mobilised a month before the high-profile Gay Pride with the announcement that the tourism ministry was spending 11 million shekels ($2.86 million, 2.2 million euros) on advertising to attract European visitors to the event.
The sum was 10 times the amount of annual state funding for LGBT associations.
"Spending 1.5 million shekels to paint a rainbow on a plane full of tourists, that's ridiculous," said Imri Kalman, co-chair of Aguda, Israel's largest LGBT NGO.
"There was a click and we woke up," he said.
"We finally understood the hypocrisy of this government and this prime minister, who boasts in English abroad about the freedom enjoyed by homosexuals in Israel but never the utters the word in Hebrew when he gets home."
After a threat by campaigners to cancel the annual gay parade this year, the community decided to bargain for a bigger share of state aid.
The finance ministry acquiesced, announcing it would give gay and transgender groups 11 million shekels -- equal to the publicity campaign -- over three years.
Tolerance toward gays in Israel can evaporate outside the cultural enclave known as "The Tel Aviv Bubble."
A 16-year-old girl was stabbed to death by an ultra-Orthodox man as she took part in Jerusalem's Gay Pride parade last year.
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Liberal 'despite the occupation'
Nevertheless, Israel is seen as progressive in terms of the visibility and equality of the LGTB community.
The army, often seen as a conservative institution, is open to gay and transgender soldiers.
Same sex marriage is not performed in Israel, where no civil ceremonies are allowed, but when a couple marries abroad the union is recognised by the authorities back home.
Many practical advances in status and legal standing have been won by appealing to the Supreme Court, after legislation in favour of gay rights has been shot down in parliament, where traditionalist Jews and Muslims have clout.
Amir Ohana, one of the two openly gay lawmakers in the present parliament, is a member of Prime Minister Benjamin Netanyahu's rightwing Likud party.
He says Tel Aviv is one of the few cities in the world where he can walk with his male spouse, pushing their two babies without it surprising anyone.
"It's very good that we have something to be proud of in this country and that is LGBT rights," he said.
"I only wish that one day we could stage a 'pinkwashing' contest throughout the region."
Fadi Khoury, a young Arab Israeli LGBT activist, thinks the community has been too passive. He boycotted this year's parade and invited Jewish fellows to do the same.
"Israel wants to rebrand itself as a liberal democracy -- despite the occupation -- by claiming that neighbouring societies, especially the Palestinians, aren't as tolerant towards sexual minorities," he said.
"A moral human rights struggle cannot be one that is partial. The state is the same source of human rights infringements for both the Israeli LGBT community and the Palestinians under occupation."