Several days of violence in Bradford has seen more than 160 police officers injured and scores arrested for public disorder offences.
The report says people in the city are afraid to raise issues due to the delicate state of race relations. It says: 'There is a fear of people talking openly and honestly because of possible repercussions, recrimination and victimisation.
'There is a fear of challenging wrongdoing because of being labelled a racist. There is a fear of confronting the gang culture, the illegal drugs trade and the growing racial intolerance, harassment and abuse that exists. There is a fear of leading and managing effective change because of possible public and media criticism.'
Among the report's recommendations is an audit of council jobs filled by ethnic minority staff.
Lord Ouseley, former chairman of the Commission for Racial Equality, led a panel of 11 which canvassed views from across the city's communities between November and April. Segregation in schooling and housing are highlighted, as is low academic achievement in many schools and a flight of middle-class whites to the suburbs.
The large number of all-Muslim and all-white schools are adding to the city's fragmentation along racial lines, it warns.
Council leader Margaret Eaton (Con) said: 'The events of the weekend were regrettable and have made the review even more pertinent. I am determined to work with local communities and other organisations to build a district we can be proud of.'
Liberal Democrat group leader Jeanette Sunderland said the report indicated the direction that needed to be taken, although Lord Ouseley was in danger of mystifying the issue with jargon. She said: 'What we need is for everyone to sign up to a common agenda of tolerance and respect.'
Opposition leader Ian Greenwood (Lab) said while many of the report's recommendations were sensible, it 'would not provide the answers to deal with the problems of a complex society like Bradford. It is not a definitive statement of where we are at or where we need to go'.
Chris Myant, a spokesman for the CRE, commented: 'What interests us is Bradford's response to the report. Twenty years after the 1981 riots [in Brixton and Toxteth], we don't want to see the process being repeated again without action being taken.
'We need to see a listening exercise by other councils, to find local solutions to local problems. The problem is not going to be sorted out by imposing a single blueprint nationally because the answers are different in each case.'