General Peter Cosgrove says Australians have reasons to be proud of their response to emergencies like the 2004 Asian tsunami.
But he says dark incidents, such as the recent attacks on Indian students and the 2005 Cronulla riots diminish us in our own eyes and those of the world.
In his Australia Day address the former Australia Defence Force chief and 2001 Australian of the Year's says, despite undoubted pockets of racism in Australia the nation's national character's one of compassion and generosity.
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In a speech titled Sunshine and Shade: The triumphs and tribulations of Australia in our time, the former Australia Defence Force chief and 2001 Australian of the Year said despite undoubted pockets of racism in Australia, the nation's national character was one of compassion and generosity.
He drew on efforts to assist neighbouring countries in times of need, including Solomon Islands in 2003 and again in 2004 following the devastation of the Asian tsunami.
And there was also sunshine, he said, in 1999 when Australia played a central role East Timor's rocky road to independence.
"In all the cases I have described, Australians behaved wholeheartedly and equitably, kindly and compassionately.
"Observing those Australians dealing with the people they set out to help and indeed their fellow Australians and non-Australian co-workers, would that darkest of labels, racist, have seemed justified? No and no again."
General Cosgrove also acknowledged our past errors in relation to indigenous Australians, and more recently, the ongoing estrangement between broader society and the Muslim population.
"It is a reality that indigenous Australians have been hugely disadvantaged in seeking to retain the integrity and dignity of their ancient culture," he said.
But there are no easy solutions or perfect answers, he added.
"Every well-intentioned, strong initiative to try and do the right thing faces the problem of the humiliation of intrusiveness versus the effectiveness of the intent."
In closing his address, General Cosgrove reminded the people of Australia that our nation is one of good fortune and a good future.
"It is in our nature to be optimists, not because we are shallow or lazy, living the 'she'll be right' dream, but because we are a highly moral, inclusive and stable society with the precious gifts of democracy, affluence and security," he said.
"Our challenges are not beyond us."
