About 1,500 people were killed in the post-election violence
Kenya's parliament has approved a Truth, Justice and Reconciliation Commission (TJRC) to probe human rights abuses since independence in 1963.
Those found guilty of genocide and other human rights violations will not be eligible for amnesty.
The move comes amidst debate on how to deal with those implicated in the violence that broke out after the disputed elections in December 2007.
An international tribunal has been urged to try those behind the clashes.
More than 1,500 people were killed and some 300,000 more fled their homes in the unrest.
President Mwai Kibaki and Orange Democratic Movement leader Raila Odinga, now prime minister, signed a power-sharing deal in February to bring an end to the crisis and formed a coalition government.
Culture of impunity
The setting up the TJRC was recommended by the National Dialogue and Reconciliation Committee which was formed to deliberate on the root causes of the post-election violence.
The clashes were blamed on unresolved historical injustices such as distribution of land and state resources, and alleged human rights violations by previous governments and political leaders.
The TJRC will investigate crimes committed since the country's independence in 1963 to February 2008.
It will have nine commissioners - six Kenyans and three foreigners.
The foreign commissioners will be appointed by the team of African Eminent Personalities which mediated the power-sharing deal along with former UN Secretary-General Kofi Annan.
Correspondents say the TJRC is separate from the international tribunal, which was the recommendation of a separate commission of inquiry set up after the violence, headed by Justice Phillip Waki.
It found that politicians and businessmen on all sides had stirred up violence after the polls.
Last week, Mr Waki handed over a sealed list of suspects to Mr Annan, the chief mediator of the power-sharing agreement.
It was agreed that if an international tribunal was not set up within 60 days, Mr Annan would hand over the names to the International Criminal Court (ICC) in The Hague.
Politicians have clashed over the Waki report's recommendations, with some calling for unconditional amnesty for those implicated.
Others insist that those involved should be prosecuted as amnesty would encourage impunity.
President Kibaki's Party of National Unity (PNU) says that the report should be implemented fully within the framework of a new constitution.
HAVE YOUR SAY
I hope the commission will do everything in its capacity to bring human rights offenders to justice
Bekele Woyecha, Swansea, UK
Mr Annan urged the Kenyan government to set up the tribunal, saying the long culture of impunity must end.
Human rights activists say they fear the TJRC will duplicate some of the work to be undertaken by the Waki tribunal.
"Considering the political realities in Kenya, I will not be surprised that there will be political actors who will want to slow down on the implementation of the Waki recommendations," human rights lawyer Harun Ndubi told the BBC's Focus on Africa programme.
Mr Ndubi said he read political mischief in the duplication of roles between the TJRC and the proposed tribunal.
"They are hoping that they will cover their tracks because they will have an opportunity to negotiate for amnesty... It is possible that the politicians are using this TJRC as an avenue for self interest," said Mr Ndubi.
The attorney general is to study the bill before presenting it to President Kibaki for assent into law