Israel has dismissed the report as baseless.
The 126-page report said Israeli troops killed or maimed thousands of Palestinians who were not taking part in the Palestinian intifada (uprising) against Israeli occupation.
It is widely thought that Israeli troops and paramilitary Jewish militants have killed as many as 4000 Palestinians, a fourth of them children and minors, since the outbreak of the uprising nearly five years ago.
During the same period, nearly a thousand Israelis, including a hundred children and minors, were killed by Palestinians.
The latest findings are supported by similar research conducted by prominent human rights groups as the London-based Amnesty International and Israel's B'tselem organisation, which monitors Israeli army behaviour in the occupied territories.
The HRW report, released on Wednesday at the American Colony Hotel in East Jerusalem, accused Israel of investigating less than 5% of fatal shootings to determine whether soldiers opened fire lawfully.
The report said that the few inquiries that were launched didn't meet internationally-accepted standards.
"The [Israeli]government's failure to investigate the deaths of innocent civilians has created an atmosphere that encourages soldiers to think they can literally get away with murder"
Sarah Leah Whitson,
Human Rights Watch
"Most of Israel's investigations of civilian casualties have been a sham," said Sarah Leah Whitson, Middle East director at HRW. "The government's failure to investigate the deaths of innocent civilians has created an atmosphere that encourages soldiers to think they can literally get away with murder."
Israel's military said it had investigated more than 130 cases of soldiers opening fire against regulations. Twenty-eight indictments have been handed up, including one indictment on a manslaughter charge, it said.
Six soldiers have been convicted, and one has been acquitted. The rest of the cases are being processed, the military said.
Last year, an Israeli soldier, dubbed "Captain R" was acquitted of killing a nine-year-old Palestinian schoolgirl, Iman al Hams, whose body was riddled with more than 20 bullets.
HRW said the crux of the problem was a military justice system that relied on the questioning of soldiers to determine whether a military police investigation is warranted.
These questioning sessions don't seek or consider testimony from victims or non-military witnesses, and don't try to reconcile discrepancies between soldiers' accounts, and video, medical or witness evidence, the group said.
It urged the military to set up an independent body to investigate allegations of serious human rights abuses by Israeli security forces.
The Israeli military said there was no basis to the charges. "All allegations claiming that innocents or terrorists had been killed as a result of the (military) opening fire in violation of official rules of engagement are thoroughly and seriously examined," the military said in a statement responding to the report.
An Israeli army spokesman said the figures in the HRW report ought to be considered within the overall context of Israel's war on terror, referring to Palestinian resistance attacks on Israeli targets.
Israel has says the report is
'unbalanced' and 'baseless'
Officials at the Israeli Foreign Ministry declined to comment on the report, saying they needed more time to study it.
The Palestinian Authority has lauded the report, calling it a "belated but welcomed condemnation of Israeli crimes".
"We hope the entire world and the various human and civil human rights organisations around the world will study and internalise this report," said Ahmed Subh, director-general of the Palestinian Ministry of Information.
Subh accused Israel of "committing every conceivable crime against our people under the false rubric of fighting terror and suicide bombings".
"We call upon the international community to pressure Israel to respect the international humanitarian law, including the Fourth Geneva Convention, which governs the treatment of the occupied by the occupier."