The "Celebrate" event, which is organized by DOD Pride, an employee resource group that works with the Pentagon, comes at a time when transgender supporters are still pushing for an end to the military's policy that bars them from serving openly.
"There is a lot to celebrate," James Hatt, an Air Force civilian and event organizer, told CNN. "We aren't complete yet, but we have won some victories."
In a speech at the gathering of about 100 people, Secretary of the Navy Ray Mabus said gains have been made but acknowledged there is still more to be done.
"Although it took far too long for policy to match reality, and while there is still work to be done, we have made great progress toward achieving DoD Pride's goal of ensuring that all members of the Department are empowered to support its mission in an inclusive workplace free of discrimination," Mabus said.
Members of the transgender community are prohibited from openly serving in the military, unlike lesbians, gays and bisexuals, who can serve openly.
Defense Secretary Ash Carter last year called the prohibition on transgender people "outdated, confusing" and an "inconsistent approach that's contrary to our value of service and individual merit." As a result, a working group was set up to spend six months developing new policies.
But those hoping the Pentagon would announce a change at the event Wednesday came away disappointed.
"I don't know what's taking so long to resolve the policy," Sue Fulton, an Army veteran and president of LGBT military group SPARTA, told CNN.
"There have been many transgender service members who have come out within their commands and been accepted. But they are in policy limbo until the new policy is released. We need Secretary Carter to act."
Fulton, who did not attend year's Pentagon pride event, said: "As a leader of an organization that includes hundreds of active duty transgender service members, I don't feel comfortable celebrating military LGBT accomplishments while they continue to serve in silence."
Aaron Belkin of the Palm Center, which conducts research on sexual minorities in the military, attended the gathering and said he didn't understand the delay in the working group's findings.
"It was just so awkward, even shocking... here we are at the pride celebration in honor of LGBT service members and we are now 11 months past Secretary Carter's pledge to review the ban in six months," he told CNN.
A Pentagon spokesperson said the working group is continuing "to evaluate this complicated issue."
"The working group continues to meet and deliberate with experts from the Military Services," the spokesperson said.
"They have been tasked with examining input and data from multiple sources inside and outside the Department to evaluate this complicated issue while keeping the impacts to health care, individual and Service readiness, and cost implications in mind. All of this must be taken into account before a final decision can be made."
Military policy toward LGBT communities has changed significantly in recent years. The "Don't Ask Don't Tell" law that prohibited gay and lesbian members from serving openly, was repealed in 2010. In 2015, the Family Medical Leave Act was extended to cover all legally married same-sex couples and the DOD amended its equal opportunity program "to protect service members against discrimination because of sexual orientation."
In a statement posted on the Department of Defense website, Carter honored LGBT service personnel.
"Throughout our history, brave LGBT soldiers, sailors, airmen, Coast Guardsmen, and Marines have served and fought for our nation," the statement said. "Their readiness and willingness to serve has made our military stronger and our nation safer."