Wales needs a minister dedicated to helping the 68,000 young people in Wales not currently in education, employment or training (Neets).
A cross party committee of assembly members said the 16-24 year old Neets were being "failed" by the system.
Wales has a higher proportion of Neets than anywhere else in the UK.
The Welsh Assembly Government says it has invested £49m into training and education for Neets.
The report's recommendations were welcomed by The Prince's Trust, a charity which gives practical and financial support to young people to help them move into work, education or training.
The enterprise and learning committee report said: "It is deeply worrying that so many of our young people are still being failed by the system."
The committee concluded the best path forward would be to appoint a dedicated minister to champion the needs of Neets and co-ordinate all the various support on offer to them.
They also recommended a "lead agency" be established to help implement the changes.
The AMs also wanted "engagement or outreach coaches" to work with JobCentre Plus in the future and be available to intervene at any stage in a young person's life, helping them with a raft of issues from family to education and health.
Young disabled people were twice as likely to be Neets as their non-disabled peers, the report found.
Committee chair, Gareth Jones AM, said: "The causes of young people being Neet are complex and there are no easy answers to addressing the issue.
"The important point is that all policies and interventions that impact on these young people should be coherent, linked and aligned within an overarching framework of clear objectives and targets.
"There is no shortage of aspiration or strategies and we do need diversity. However, more effective action on the ground and better collaboration between different agencies is vital to ensure a continuum of support for these young people."
Neets are problematic because they often fall between compulsory education and eligibility for welfare.
The Welsh Assembly Government published its Neet strategy in 2009 with the aim of helping prevent 30,000 young people between the ages of 11 and 19 from dropping out of education and employment.
But the committee argued that so far that strategy's delivery had been "patchy".
The Welsh Assembly Government said: "A lot of work is already taking place to support young people who are Neet in Wales and we have also invested an additional £49m to fund more training and education places."
Education Minister Leighton Andrews is due to make a statement on the issue in the coming months and some of the report's findings are addressed in the assembly government's Youth Engagement and Employment Action Plan, it said.
Rick Libbey of The Prince's Trust said helping Neets break the cycle was key.
He said: "Government, charities and employers must ensure they work together to give them the long-term support they need to escape unemployment for good.
"Thousands of young people across Wales don't have the skills, confidence and qualifications to break out of long-term unemployment and poverty.
"These youngsters have been pushed further from the jobs market in the recession, as they struggle to compete with graduates fresh out of university."