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Home Secretary Jack Straw welcomed the long-awaited findings and promised sweeping judicial reforms - but he said Metropolitan Police chief Sir Paul Condon should not resign.
Stephen's mother Doreen Lawrence said the report only "scratched the surface".
She added: "Black people are still dying on the streets and in the back of police vans."
Sir Paul admitted the report had brought "shame" on his force - but he refused to step down.
He said he would respond to the report with a crackdown on any form of racism in the force, a rapid response murder inquiry force and a research programme looking at how to improve policing.
He also said he would continue to try to prosecute Stephen's killers.
But Stephen's friend who was with him during the attack, Duwayne Brooks, demanded Sir Paul do the "honourable thing" and quit.
Stephen, 18, was fatally stabbed by white youths at a bus stop in south-east London in 1993.
Stephen Lawrence's parents brought a private prosecution against Neil Acourt, Gary Dobson and Luke Knight after charges against Jamie Acourt and David Norris were dropped due to lack of evidence.
But the three men were acquitted in April 1996 after the judge ruled identification evidence from Duwayne Brooks was inadmissible.
Under the rule of "double jeopardy" the three cannot be tried for the same crime twice.
The Macpherson Report has recommended the Law Commission consider giving the Court of Appeal powers to permit prosecution after acquittal if new, viable evidence were presented.
The home secretary said the Race Relations Act would be extended to cover the police - one of the report's 70 recommendations.
Mr Straw's response to the report followed Tony Blair's promise during Prime Minister's Questions of a "fundamental shift in the way British society deals with racism".
"The publication of today's report on the killing of Stephen Lawrence is a very important day in the history of our country," Mr Blair said.
"It will certainly lead to new laws but more than that it will bring a new era of race relations."
In March 2001 a Law Commission inquiry concluded it should be possible to quash acquittals in murder trials where there is "reliable and compelling new evidence of guilt".
In September 2002, two of the former suspects in the Stephen Lawrence murder investigation - Norris and Acourt - were jailed for 18 months for a racist attack on a police officer.
The Metropolitan police force has tried to improve its reputation since the report and has set up an Understanding and Responding to Hate Crime project which analyses and reviews data.
But three years on, the force had just 1,205 ethnic minority officers, 4.42% of the total.
The Home Office has set a target of 5,662 black and Asian officers by 2009.
As a result of the Macpherson inquiry, every London borough has a community safety unit that records and investigates allegations of racism and other hate crime.
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