You have to be very patient, if your Mac is syncing with iCloud Photos and the library is using "Optimize Storage" and the Mac has not much local storage. The Mac needs to download the photos from iCloud and prepare them to be used as desktop pictures and the Mac may not be able to download your complete library at once. It will take a very long time until more photos will be shown, and if there is not much free storage, only a few items will show at all.
To set your desktop picture from your Photos Library, create a small album in Photos with photos you want to use as a Desktop Picture and view them enlarged to force a download from iCloud. Include only photos in landscape orientation - the photos in Portrait orientation will not be shown (correction - on my last test they have also shown up, a quarter of an hour after the landscape photos). I am keeping the album I want to use for the Desktop picture open in Photos, step through all photos enlarged, while changing the the Desktop Picture in the System Preferences.
I prefer the dynamic wallpapers anyway, that will adapt to the hour of the day. It is fun to create the own dynamic wallpapers and to install them. https://dynamicwallpaper.club/gallery