The inquiry did not have a mandate to identify the perpetrators of the crime.
Ripudaman Singh Malik and Ajaib Singh Bagri were charged in 2000 with the murder of those on board, but in 2005, a provincial supreme court judge found that the evidence against them was not credible.
The only man convicted in the case pleaded guilty to a lesser charge in relation to a second bombing attempt at Narita airport in Toyko, Japan, which killed two baggage handlers.
The airplane bombing was allegedly carried out by Sikh fighters who were aiming to gain an independent homeland in India.
Most of the passengers on board the Air India flight were Canadians of Indian ethnicity.
Imtiaz Tyab, Al Jazeera's correspondent in Toronto, Canada, said the report high-lighted serious intelligence lapses from security forces.
Authorities did not conduct proper surveillance of Sikh groups and "investigators were unable to distinguish between traditionally dressed Sikh men," our correspondent said.
Intelligence 'turf wars'
Major, a former supreme court judge, highlighted what he said were the poor relations between the Royal Canadian Mounted Police (RCMP) and the Canadian Security Intelligence Service (CSIS) spy agency.
Intelligence services and police "engaged in turf wars, failed to share information and adopted a misguided approach to sources," Major said at a news conference on Thursday.
"The government needs to take responsibility to avoid further failures and to prevent a return to a culture of complacency."
"It confirms what the families suspected while asking for the inquiry that it was not a sheer accident"
Bal Gupta, relative of victim.
The report also slammed how the government interacted with families of the victims of the attack.
Police did an inadequate job of keeping the families updated on the investigation and often kept information from them, the report said.
"It confirms what the families suspected while asking for the inquiry that it was not a sheer accident," Bal Gupta, who lost his wife in the bombing, said.
"It was a compounding of mistakes after mistakes after mistakes".
Major's 4000 page report also said that Canadian law needs changes to better deal with long and complicated terrorism trials.
There are 64 recommendations in the report, including creating the position of a national security adviser or what some are calling an 'intelligence tsar' to advise government on security threats and to mediate disputes between the CSIS and the RCMP over information sharing.
The report recommended that the Canadian government fund an academic research centre for the study of terrorism and counterterrorism to be named "The Kanishka Centre" after the bombed airplane, to honour victims of the attack.