According to the report published by the state comptroller on Wednesday, a study found "serious and continuous improprieties" in preventing construction illegal under Israeli law on land captured in the 1967 Middle East War.
The World Court brands Israeli settlements on occupied land illegal.
The 400-page report said laws on illegal building had not been enforced strictly enough for either Israelis or Palestinians living under Israeli administration.
"Cases were found where the administration allocated thousands of dunams of land for [Jewish settlement] without due process," the report by Comptroller Micha Lindenstrauss said.
"Since 1993 the administration has ceased registering state land, yet continued to confiscate land without putting it through the registration process," it said. (A dunam is 1000 square metres.)
Israel's Defence Ministry had no immediate comment on the report.
Facts and figures
Israel recently finished removing 9000 settlers from the Gaza Strip and northern West Bank under a plan to "disengage" from conflict with the Palestinians, but hundreds of thousands of settlers remain in the West Bank, home to 2.4 million Palestinians.
The report echoed criticism by a government-appointed investigator who said in March that 105 Jewish settler outposts had been built without Israeli government permission and had spread with state funding and military protection.
Israel has said it will remove many unauthorised outposts under a US-backed peace roadmap but has yet to comply. Palestinians have failed to meet their obligation to start disarming resistance fighters.
Only four of the 105 settlements
in the West Bank were evacuated
Defence officials failed to prevent more than 70% of cases of illegal construction by Israelis and more than 55% of that by Palestinians in the West Bank from 2000 to November 2004, the comptroller's report said.
In addition, the army seized thousands of dunams of land in the West Bank between 2001 and 2003 under temporary military confiscation orders, during the Palestinian uprising, and has failed to vacate nearly 40% of the land.
"As a result, Palestinian residents have been unable to work their land in these areas," the report added.