"But we could not afford to give away two daft goals early in the second half and it was game over then.
O'Leary refused to use Juan Sanchez's controversial opening goal as an excuse for his side's defeat and instead lay the blame at their sloppy start to the second half.
"We did well in the first half and the game was still our's.
"I was happy at half-time," he claimed.
"But we could not afford to give away two daft goals early in the second half and it was game over then.
"We got punished on the basis of video evidence before the game as Lee Bowyer was handed a suspension.
"We couldn't afford to lose an important player like that just before the game - not with our squad and the injuries we've had.
"And yet there was no chance of using video evidence over what was a terrible decision on the first goal.
"From what I saw, I think the lad did very well to disguise it as he put the ball in with his hand.
"That's not an excuse, though. I have no complaints over the result. Valencia were the better side.
"It is typical of what we have had to contend with but I am proud of the team.
"But I wish Valencia well. They are an excellent team."
O'Leary was also quick to condemn Alan Smith's reckless last-minute challenge on substitute Vicente, which earned the striker a red card.
"Smith was stupid. We will most probably lose him for three games now and he has to learn that if you make those tackles in European football you will get a red card.
"He has to learn and we have to learn how disciplined Valencia are."
O'Leary also backed his side to bounce back from the disappointment of losing a European semi-final for the second successive year.
"I hate losing but I never expected to get this far.
"I'm disappointed but proud of how far we have come.
"We have got to get stronger and better and I think we will."
Leeds keeper Nigel Martyn admitted that Valencia's storming start to the second half had stunned the Yorkshire side.
"In the first half we competed well and we should have gone in at half-time 0-0.
"We're disappointed. We felt we could come here contain them and hit them on the break but, credit to them, they caught us cold at the start of the second half."
Leeds chairman Peter Ridsdale said: "We've got nothing to be ashamed of.
"We've had an incredible journey. It's been wonderful and we've enjoyed it."
Valencia striker John Carew felt his side deserved the win, but maintained Leeds had shown they were a team to be feared in Europe.
"We were the better team and when we got the early goal, we believed we were going to make it," he said.
"We got two quick goals and at 3-0 it was difficult for Leeds.
"They lost a lot of enthusiasm and fighting spirit, but they are a very good team - one of the best in Europe."