You need to register for the VNet Peering preview using PowerShell:
Register-AzureRmProviderFeature -FeatureName AllowVnetPeering -ProviderNamespace Microsoft.Network –force
It takes up to 30 minutes for this to complete. You can check your registration status by running:
Get-AzureRmProviderFeature -FeatureName AllowVnetPeering -ProviderNamespace Microsoft.Network
However … there does appear to be issues during these early days of the preview. I’ve tried it out with a couple of subscriptions (Open and CSP) and the registration claims to have succeeded but I cannot peer VNets yet, because I “have not registered yet”.
It’s not unusual for a preview to have issues in the first couple of days – this is the first time the feature (which is still preview!) will have widespread rollout and usage. I would expect that Microsoft has detected issues and is working on a fix for this anticipated feature.