The study that was authored by former diplomats and leading academics accused "a foreign-policy elite" of having a "fixation... on past imperial glories" that clouded decision-making on issues such as international trade and Britain's relationship with Europe.
The authors, who include the former head of the parliamentary intelligence committee, the former British ambassador to Washington and the former head of MI6, urged politicians not to base Britain's foreign policy on "self-interest”.
"A unified national interest requires a singular identity that Britain's open, ethno-culturally diverse society should be proud to eschew," it said.
Instead, Britain should exploit its "hyper-connectedness and global outlook" to help shape global policies, creating "a country comfortable with its present status as an independent, confident, strong state."
The study further emphasized that Britain is becoming "increasingly insular and self-absorbed", as revealed by its impotence in the Syria and Ukraine crises and its "ambivalence" towards the European Union.
"Sidelined in Syria, ineffective in Ukraine, unwilling in Europe, inimical on refugees. A crisis of confidence has become a crisis of identity," said the report, commissioned by the London School of Economics (LSE), AFP reported.
"Whilst the world has never been more interdependent, we fail to recognise that future generations will judge us by the success we make of belonging to and making a contribution to global order," it added.