Arresting a dealer may lead to a power vacuum, the think tank says
Drugs policing should switch focus to tackling the related violence rather than simply making seizures and arrests, a think tank report has said.
Raids can cause unforeseen problems, like turf wars, and a "smarter" policy is needed to protect communities, the UK Drug Policy Commission says.
Critics say tolerating dealing could "write off" some neighbourhoods.
The Home Office said: "Harm reduction underpins every element of our approach to tackling this complex issue."
The commission's chief executive Roger Howard insisted it was not calling for police to "tolerate" drug dealing but said they should target the most harmful drug activity.
"We are saying... don't be misdirected by just focusing on arrests and seizures. That just tells you how busy the police are, it doesn't tell you what impact they are having.
"Some drug markets are very violent, very harmful to local communities [who] are living under the cosh," said Mr Howard.
Instead, the commission wants forces to focus on tackling issues like gun violence, sexual exploitation and use of children as look-outs or couriers.
It suggests forcing drug dealers away from residential areas, where children play and people may get intimidated, to areas like industrial estates. This, it says, would not reduce the amount of drug dealing but would lessen its impact.
Trial schemes in Britain to offer low-level dealers treatment and support as an alternative to prosecution could be extended, it adds.
However, former Conservative leader Iain Duncan Smith, who founded the Centre for Social Justice think tank, said current drugs strategy was "a mess".
He said allowing police to decide which communities most needed support, while tolerating dealing elsewhere, would leave other neighbourhoods "written off".
"It follows like night follows day that the worst elements of people then arrive in that community and deal," he said.
Liberal Democrat home affairs spokesman Chris Huhne said the "enormous" rise in cocaine use last year showed the "negligible" impact of current policy.
"We need to focus on what works to reduce the damage done by drug abuse," he added.
The commission accepts that police, together with the Serious Organised Crime Agency (Soca), are already trying to assess and tackle the problems the drug trade causes communities.
It claims a survey of 427 police and other enforcement agency staff provides support for its case to change focus.
About 90% of respondents said it was "unlikely" the UK drug market would be wiped out in the near future.
Only 21% said current targets - relating to arrests and seizures - were a good measure of the harms caused by dealing.
While the commission accepts limiting supply is important, its report claims that in the UK's entrenched drugs markets, arrests can lead to damaging unintended consequences.
For example, the arrested dealer may be replaced by someone who is more violent.
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If the right choice is to let drug dealing happen then the law should be changed to allow this
Arresting one king-pin drug dealer also raises the possibility of creating a power vacuum, with the resulting turf war and spike in violence, says the report.
Humberside Chief Constable Tim Hollis, the Association of Chief Police Officers' drugs spokesman, said the police's commitment to neighbourhood policing reflected a "desire to listen to community concerns and take action that will contribute towards improving the lives of local people".
Soca director of intelligence David Bolt said impact on communities was already being taken into account.
He acknowledged "an intelligent combination of traditional law enforcement alongside new and innovative approaches" was needed to tackle the harm caused by the drugs trade.
The Home Office said "tough enforcement is a fundamental part" of their strategy but also acknowledged the complexity of the problem.
A spokesman said: "We are not complacent; communities do not want to be blighted by the effects of drug misuse and drug dealing.
"That is why police, local authorities and communities must continue to work together so that our streets and communities can be free from the crime and anti-social behaviour they cause."