Repro 1. Via Azure Portal Add Vnet 2. Go Back into VNet just created and add Gateway Subnet. 3. From within same VNet try to add Peering, select peer Vnet and check "Allow gateway transit" checkbox.
Results - "Neither vnet-xxx nor vnet-yyy has a gateway configured. The gateway transit setting requires there to be a gateway in one virtual network in the peering. Please unselect the gateway transit setting to continue, or navigate to one of the virtual networks and add a gateway."
I have many other VNets and peering setup in the same manner and they all work. Going into the vnet peering configuration I can see the same error message however the checkbox is checked and it works.
The UI for adding a peering appears to have changed since I have added a Vnet and peering as I have never seen this error message prior using the old configuration UI for a peering.
FWIW I am trying to create a Vnet to be used by an app service that will peer to a Vnet that I have my managed SQL connected.