However, the 10-member panel was not unanimous in its recommendations.
"
We want to give our Australian scientists the best chance of being able to find some of the cures that is the great hope of this research
"
Nicola Roxon, panel deputy chair
Six members said scientists should be allowed to take the cells from embryos surplus to IVF programmes, provided consent was obtained and the work done under strict guidelines. It is thought there are about 60,000 such embryos currently in storage in Australia.
But four committee members opposed using these surplus embryos in experiments. They wanted research restricted to existing lines of embryonic stem cells, of which 10 are said to exist in Australia.
The inquiry left open the issue of Australian researchers being allowed one day to clone humans to produce the cells - so-called therapeutic cloning. They said merely that there should be a moratorium on the practice for three years. All the panel members said cloning for reproductive purposes should be banned.
'Less contentious'
Stem cells are "master" cells that have the potential to develop into the body's many different cell types. Scientists believe that if they can control the development process, they should be able to create, in the lab, replacement cells that can then be used to treat a range of degenerative diseases.
All the panel's members were agreed that stem cells found in adult bodies should be investigated by researchers. It was on the scientists' desire to pursue the potentially more powerful stem cells in embryos that split them.
"We believe it is ethically less contentious to use adult stem cells," committee chairman Kevin Andrews, who opposed the use of surplus embryos in research, told a news conference.
But Nicola Roxon, the committee's deputy chair, said ruling out using the surplus embryos was a waste as they were destroyed anyway.
"We want to give our Australian scientists the best chance of being able to find some of the cures that is the great hope of this research and we were not convinced... there is sufficient embryonic stem cells in place at the moment," she said.
'Opens a window'
Australia has a number of groups currently at the forefront of stem cell research. Embryonic cell lines are held by the Adelaide-based BresaGen Ltd, and the Monash Institute of Reproduction and Development, in Clayton, Victoria.
BresaGen's chief operating officer, Meera Verma, welcomed the panel's support for using embryos surplus to IVF in research.
"This opens the window for us because if we need to generate additional stem cell lines we can do so. It won't inhibit research," Verma told the Reuters news agency.
But the Australian Federation of Right to Life Associations has called for a national ban on all embryo stem cell research.
"All human beings, embryos or otherwise, are entitled to have their right to life respected," said spokeswoman Alison Hope.
The 300-page report is likely to influence future policies agreed by state and federal governments.
In June, Prime Minister John Howard and the state premiers set up a working party to draw up a national approach to stem cell research and cloning issues. It will use the Andrew's report in its deliberations.