The report, sponsored by the government and released on Wednesday, describes the secret cooperation of various ministries and official institutions in channeling money to the outposts.
Jewish settlers first began encampments on occupied territory more than a decade ago, breaking up the contiguity of Palestinian areas and trying to prevent the establishment of a Palestinian state.
Israeli Prime Minister Ariel Sharon had repeatedly promised the United States to dismantle the outposts, one of Israel's first obligations under the US-backed road map peace plan.
However, since accepting the plan in 2003, Israel has only removed a few outposts, citing legal difficulties.
"It's something the government did with the settlers, and it's actually the policy of Israel in the West Bank"
Yariv Oppenheimer, Peace Now (anti-settlement group)
The 340-page study was presented on Wednesday at a news conference in Sharon's office.
From excerpts leaked a day earlier to the news media, it was not immediately clear to what extent Sharon - once a leading settler patron - was being held responsible for the establishment and expansion of the outposts.
As foreign minister in 1998, Sharon had urged settlers to seize West Bank hilltops and establish outposts. One of the peak periods for outposts began after Sharon became prime minister in 2001.
Shaul Goldstein, a senior settler leader, said Sharon was deeply involved.
"It's obvious that the one who send us to do so in order to protect the roads and land is the prime minister so he should look at himself in the mirror and ask himself why and how he did it and he has to be questioned, not us."
Yariv Oppenheimer, head of the anti-settlement group Peace Now, said that "it's something the government did with the settlers, and it's actually the policy of Israel in the West Bank".
Housing Minister Yitzhak Herzog, a member of the moderate Labour Party, acknowledged that Sharon would have played a key role in setting up the outposts, but said the prime minister had a change of heart and should be praised for ordering a review of the outposts policy.
Settlers have been aided by
many Israeli governments
Labour joined Sharon's coalition late last year to help him push ahead with a proposed withdrawal from the Gaza Strip and four West Bank settlements this summer.
"The prime minister is displaying unusual courage in the recent period, including on this issue (outposts)," Herzog told Israel Army Radio.
"The prime minister was connected to this issue, as someone who led the settlement movement ... for many years. But to unload the whole story on the prime minister is not right" Herzog added.
On Sunday, Sharon is to present the report to the cabinet during its weekly meeting.
It remains unclear whether the ministers would hold a vote on whether to approve the recommendations, which reportedly include prosecuting several key players in setting up the outposts.
Israeli radio reports said Sharon would adopt the recommendations before the end of the week.
Herzog and former Israeli defence minister Binyamin Ben-Eliezer urged Sharon to dismantle all outposts immediately.
"Unless the government states its position unequivocally and takes action, it won't do any good"
Binyamin Ben-Eliezer, ex-Israeli Defense Minister
Ben-Eliezer said the government had to send a clear message to the settlers that they could no longer act as they pleased, and that keeping outposts posed a grave danger to peacemaking with the Palestinians.
"Unless the government states its position unequivocally and takes clear and drastic action, it won't do any good," Ben-Eliezer told Army Radio. "We dismantle 20 (outposts) and tomorrow there will be 40."
The study pointed to the Housing Ministry as a key source of support for the outposts, particularly when it was led by right-wing politicians during Sharon's first term and part of his second administration.
Herzog, who took over earlier this year and opposes settlement expansion, said he had halted all funding for the outposts.