Bashir acted in a "deceitful" way and faked documents to obtain the interview, the inquiry said.
And the BBC's own internal probe in 1996 into what happened was "woefully ineffective", it added.
The BBC and Bashir have both apologised, and the BBC has written to Princes William and Harry.
The corporation said the report showed "clear failings", admitting it should have made more effort to get to the bottom of what happened at the time.
