Thank you, yes I double checked. The note is created on the iCloud account. Same setting as my iPhone and this works as expected on iOS 14. For some reason doesn’t work on the iPad OS. But it looks like others are not experiencing this issue. In my case I get to choose it, but the photos screen comes and goes right away [flashing].Is there a chance you're creating/saving your note in Gmail or some other third-party cloud? iCloud and "On This iPad" support images, but third-party Notes may not support all of Apple's features.
In Notes on iPad, open the Folders sidebar to see where the current note has been created (it'll be highlighted).