The report, Shell-Shocked: Civilians Under Siege in Mogadishu, said residents suffered multiple war crimes.
Somali government forces fighting alongside the Ethiopians failed to warn civilians in combat zones, looted property, impeded aid, and mistreated dozens of detainees, it added.
The report came as Mogadishu hosts more than a 1,000 delegates to discus ways of ending violence and promoting reconciliation in the country.
The Union of Islamic Courts also put civilians at risk by deploying among them, and had committed crimes including burning enemies alive.
Ken Roth, the group's executive director, said: "The warring parties have all shown criminal disregard for the well-being of the civilian population of Mogadishu.
"The illegal methods of warfare used by all the warring parties ... [has had a] catastrophic toll on civilians."
Addis Ababa said the report was propaganda that distorted Ethiopia's beneficial role in supporting Somalia's interim government.
"As usual, Human Rights Watch is engaged in its now well-known fabrication, and in misinforming the world in unsubstantiated fairy-tales"
Bereket Simon, special adviser to the Ethiopian prime minister
Bereket Simon, special adviser to Meles Zenawi, the Ethiopian prime minister, said: "As usual, Human Rights Watch is engaged in its now well-known fabrication, and in misinforming the world in unsubstantiated fairy-tales."
Somalia's government described the charges as "baseless". Spokesman Abdi Haji Gobdon said that they were based on "wrong impressions of the reality on the ground" from UN bodies.
Human Rights Watch had harsh words, too, for the world's attitude to Somalia.
"The UN Security Council's indifference to this crisis has only added to the tragedy," Roth said.
Fighting in Mogadishu has continued with five people killed
and 10 injured in incidents on Sunday and Monday, police and witnesses said.
Three people died and eight were wounded on Monday when a bomb hit a van after missing its intended target, a police van, witnesses said.
A police station was raided overnight, sparking clashes that killed a boy and wounded two police officers.
On Saturday, two senior Somali radio journalists were killed in Mogadishu, sparking condemnation and calls on the weak transitional government to end the violence that has plagued the city for 16 years.