Though some headlines may lead one to think that the whole program is off, only the parade — that being the most major public event of World Pride has been cancelled:

The Open House Organization announced Friday that the World Pride parade, which was scheduled to take place on August 10 in Jerusalem, has been called off due to the war in Lebanon.
However, the other gay pride events will take place as scheduled, the group said in a statement.
“This is not the time for celebrations,” Open House said. “The parade, which requires extensive security, will not take place due to the situation.”

JPost adds:

The last international gay parade, which took place in Rome in 2000 despite the wrath of the Vatican, attracted about half a million participants, while local organizers expect tens of thousands of revelers for the Jerusalem event this summer.
The curtailed six-day event will include workshops and a gay film festival.

More here and here.