The report blamed a culture of violence and substance abuse in many communities.
As part of the government plan, John Howard, the Australian prime minister, said a ban on alcohol and hardcore pornography would be enforced in those communities with the worst records.
At the same time, children under 16 would be subject to compulsory medical checks, and parents who did not adequately care for their children would face reduced welfare payments.
The government will also take control of around 70 Aboriginal communities for the next five years.
"People must be treated with respect, and in relation to this point they have not been"
Al Jazeera's Dan Nolan said that proposal in particular, was causing concern among Aboriginal leaders, dozens of whom gathered at parliament House in Canberra to voice their concern.
One of them, Pat Turner, said: "This government is using child sexual abuse as the Trojan horse to resume total control of our lands."
The plan, which was devised by the federal government without consulting Northern Territory leaders, has also been criticised by some Australian politicians.
Malcolm Fraser, a former conservative prime minister, described the government's move as a throwback to unfavourable practices of the past, such as the forcible removal of Aboriginal children from their families.
"People must be treated with respect, and in relation to this point they have not been," Fraser told ABC radio on Monday.
|Howard has been criticised for not consulting |
community leaders [GALLO/GETTY]
He said the government's response was "a throwback to past paternalism because it clearly this time has been put in place ... without any consultation with the communities".
On Tuesday the leaders of the Aboriginal township of Mutitjulu said it might respond by banning tourists from climbing Uluru, the giant red rock in the central Australian desert.
Uluru is one of Australia's top tourist attractions, drawing some 500,000 visitors a year.
Mario Giuseppe, one Mutitjulu resident, told ABC radio that women in the community were terrified that the deployment of security forces to the area meant the police were coming to take their children away.
"They think the army is coming to grab their kids and the police are coming to help them," he told ABC radio.
"This is bringing back a lot of memories and opening a lot of scars for these old people here. They are running to the hills and hiding."
"We have our Katrina, here and now"
Under ethnic assimilation policies between the 1930s and 1970s thousands of Aboriginal children were forcibly removed from their parents in what became known as the "stolen generation".
Seeking to justify the government crackdown, Howard on Monday labelled the abuse problem as the country's own Hurricane Katrina.
It was an issue, he said, that had caught the authorities unprepared and left communities shattered.
"Many Australians, myself included, looked aghast at the failure of the American federal system of government to cope adequately with Hurricane Katrina and the human misery and lawlessness that engulfed New Orleans in 2005.
"We should have been more humble. We have our Katrina, here and now," Howard said in a speech in Sydney.
"That it has unfolded more slowly and absent the hand of God should make us humbler still."