But Territories Minister Jim Lloyd maintains they won't be forcibly removed, despite the wishes of some Aboriginal leaders and traditional owners who say the site has been hijacked by fringe elements and professional protesters.
The tent embassy, on the lawns of Old Parliament House in Canberra, was first set up on Australia Day in 1972, becoming a permanent fixture in 1992, to make a statement about land rights.
Over three decades there have been several attempts by governments to negotiate for its inhabitants to move on after complaints the embassy was an eyesore and an international embarrassment.
Mr Lloyd said the report, put together by consultants Mutual Mediations, had identified views on the Aboriginal Tent Embassy and had proposed a way forward.
"The report recommends that the site remain, without permanent camping, and that it take on an educative role to communicate issues on the past, present and future aspirations of Aboriginal people," Mr Lloyd said.
"The report now gives the government not just food for thought but also recommends that the site becomes a referral point for indigenous Australians."
Mr Lloyd said the report was based on wide-ranging consultations with indigenous leaders, current occupants of the site, original protesters, traditional land owners, remote communities and non-indigenous people.
An indigenous advisory committee would now be established to provide advice on the consultation process and the direction of the future of the site.