"Anyone expecting to see the emergence in Afghanistan within the next several decades of a recognisable modern democracy capable of delivering justice and amenities to its people is dreaming in Technicolor," said the senate committee report.
"Where Canada is trying to have its biggest impact - in Kandahar - life is clearly more perilous because we are there"
Extract from the Canadian special senate committee report
It also called on Hamid Karzai, the Afghan president, to present Nato with a "comprehensive, transparent and effective plan" to reduce alleged corruption within the government, military and police.
Dan Dugas, a spokesman for Peter MacKay, the Canadian foreign minister, said Canada was committed to Afghanistan, adding that Nato defence ministers discussed the mission in Spain last week.
He said: "The meetings were very positive and successful, and there is a general optimism toward Afghanistan. The United States, Britain and the Polish have also all agreed recently to send more troops to Afghanistan."
The report said the presence of Canadian troops fighting the Taliban has made things worse for the civilian population.
"Where Canada is trying to have its biggest impact - in Kandahar - life is clearly more perilous because we are there."
The report also said Canada should boost its development aid to Kandahar and send a further 250 military instructors to train Afghan troops.
Jack Layton, leader of the left-leaning New Democrats, said the report boosted his belief that the mission was too focused on fighting rather than development aid.
He said: "The more people that look at what's happening in Afghanistan, the more concerns there are about the nature of the mission, the likelihood of its success."