After nearly three years of testimony from 377 witnesses, the Orr Commission inquiry found that police commanders committed errors of judgment when their forces opened fire on stone-throwing Arab demonstrators in Israel's northern Galilee region.
The inquiry, whose findings were released on Monday, also has harsh words for the prime minister at the time, Ehud Barak, who gave the green light for the operation.
The creation of the inquiry into the deaths of the Palestinians living in Israel in October 2000, soon after the start of the Palestinian uprising for independence in the West Bank and Gaza Strip, was widely seen as an attempt to appease Israel's outraged Arab minority.
The commission's findings are not legally binding, but carry significant weight. In 1983, a report by a commission of inquiry into the massacre of hundreds of Palestinian refugees in Lebanon by Israeli allies led to the resignation of then Defence Minister, Ariel Sharon.
The three-member Supreme Court panel said some of the police actions stemmed from prejudice against Arabs and recommended the dismissal of several top officers, and that others no longer be allowed to hold senior security posts.
During a week of rioting in October 2000, Israel-dwelling Palestinians took to the streets, throwing stones at pollice and blocking major roads.
The police response was to use live rounds, as well as rubber bullets and tear gas, killing the 13 protesters.
The police had displayed an attitude of "prior hostility" towards the demonstrators, according to the inquiry's findings.
Police had developed "a culture of lies", the commission added in the 860-page report.
The commission also recommended that the former Internal Security Minister, Shlomo Ben Ami, should not hold any public post in the security sphere in the future.
The commission criticised Barak, the then Labour Party prime minister who in broadcast remarks at the time gave police a "green light" to put down the demonstrations.
Former senior police officials, including chief of police Yehuda Wilk, who have since quit their posts, should not be able to resume public service.
The commission criticised Barak, the then Labour Party Prime Minister who in broadcast remarks at the time gave police a "green light" to put down the demonstrations.
During his testimony to the commission, Barak said the violence had taken him by surprise.
"When these events erupted, they erupted with an intensity and force and energies and motives that were not expected by us, and according to my assessment, could not have been expected," he told the panel in November 2001.
The commission did not recommend any sanctions be levelled against him, leaving no legal barrier to a political comeback.
The Palestinians who were allowed to stay in Israel after its creation in 1948 make up 18% of the population of the Jewish state, and have largely stayed on the sidelines of the Palestinian revolt, being waged mostly in the West Bank and Gaza Strip.
But these Palestinians, despite owning Israeli citizenship, have long complained of institutionalised discrimination, and the fighting has driven a wedge of suspicion between Israel's Arabs and Jews.