The report, entitled "Främlingsfienden inom oss" (literally: The xenophobe within us), calls for some 650 million kronor ($95 million) to be spent on teacher training within human rights issues over the next five years.
"When a pupil wants to challenge and say something racist the teachers often don't know how to handle the situation," the report's author, former Liberal Party leader Bengt Westerberg, said to the Svenska Dagbladet daily.
The report concludes that the greatest threat to vulnerable groups in Sweden comes not from extreme right groups but from everyday intolerance and racism.
While it was recognized that extensive work was being undertaken to tackle the problems of xenophobia within public authorities, councils and voluntary groups, the report highlighted a number of problems.
"The initiatives are often diffuse and lack an overview. There is also a lack of counter-measures against xenophobia on the internet."
The Schools Inspectorate (Skolinspektionen) and the Equality Ombudsman (Diskrimineringsombudsman) would be respectively tasked with monitoring and analysing the development of racism and how the work to tackle it is progressing.
The report and recommendations were handed over by Bengt Westerberg to integration minister Erik Ullenhag on Friday.