Djokovic was within touching distance of his first title for 12 months after earning a match point in the second set of Sunday's gripping showdown.
But the 31-year-old lost his cool, squandering that opportunity and then nervously wasting another big chance after taking a 4-1 lead in the second set tie-break.
"I wouldn't say I'm a contender, you know, for a (Wimbledon) trophy or anything like that," said Djokovic who paid a heavy toll for allowing Cilic to scramble out of trouble as the former world number one slumped in the deciding set.
With Wimbledon starting on July 2, the Serb has just a week to pick up the pieces if he wants to compete for the trophy currently held by Roger Federer.
On the surface, Djokovic, who hasn't won a title since Eastbourne last July, should take heart from winning four matches on the lawns of Barons Court.
Yet the 12-time Grand Slam champion is used to fighting for the biggest prizes in the sport and, in a frank admission, he insisted he is still some way from the form required to triumph at Wimbledon.
"I have to keep my expectations very low, considering my results in the last 12 months," he said.
"I think everyone will agree that Roger is the number one favourite. But Cilic is right up there next to him."
Djokovic is a lowly 22nd in the ATP rankings after an embarrassing French Open quarter-final defeat against Italian journeyman Marco Cecchinato earlier this month.
- Road to recovery -
The three-time Wimbledon winner hasn't earned a major title since completing his career Grand Slam by winning the 2016 French Open.
Trying to stay upbeat, Djokovic dismissed talk that he's lost his desire to return to the top.
"It's what I'm playing for," he said of competing for titles like Wimbledon.
And Djokovic claimed his performance at Queen's showed he is in a better place mentally and physically than when he crashed to a lacklustre loss to Benoit Paire in the Miami Masters in March.
"Obviously I am right after coming from the court, speaking to you guys, and I'm not going to be ecstatic about losing a final," he said.
"I'm not feeling that great at the moment. But when I sleep over, tomorrow things will obviously have a different perspective for me.
"You mentioned Miami. Yeah, that was probably one of the lowest points I have had in terms of state of mind, where I was at that point. Also my game. It's quite a significant difference."
Djokovic hopes the improvements he has made this week -- including a win over Grigor Dimitrov that ranked as his first success over a top 10 player in more than a year -- will be a milestone on the road to recovery rather than another false dawn.
"I thought I built up the momentum quite well throughout the week," he said.
"At 4-1 up in the tiebreak, double fault. Yeah, I got a little bit tight there. Obviously he used it. He served well when he needed to.
"But I can definitely take a lot of positives out of this week.
"All in all, I think the level of my tennis has been as good as it has been the last 12 months."