The 10th "Closing the Gap" study found authorities were on track to meet just three out of seven targets to help health, education and employment outcomes among Aborigines catch up with the non-indigenous population.
Efforts were showing results in areas such as reducing Aboriginal child mortality and improving rates of high school qualifications.
But four other areas including boosting indigenous employment and life expectancy were falling behind.
Prime Minister Malcolm Turnbull said results were improving, after Australia had been on track to meet just one target the year before.
"Three of the seven targets are on track this year, giving us the most promising result since 2011," he told parliament.
"The last decade has given us a richer understanding about what works and what does not," he said, adding the most valuable lesson had come from working more closely with indigenous people.
Aborigines, who make up about three percent of the total national population of 25 million, are among the most disadvantaged Australians.
Monday's report -- marking a decade since former prime minister Kevin Rudd made a historic apology to Aboriginal people for centuries of injustice -- showed the target to halve the gap in child mortality with non-indigenous Australians by 2018 was on track to be met.
The mortality rate for indigenous children under four years old has fallen from 217 per 100,000 in 1998 to 145 per 100,000 in 2016, but it is still far higher than the rest of the population.
There was also progress in the aim to have 95 percent of all indigenous four-year-olds enrolled in early childhood education by 2025, and on improving the number of Aboriginals who finish high school by 2020 with a recognised qualification.
But overall school attendance goals were not being met and nor was the proportion of indigenous children achieving national minimum standards in reading and numeracy.
Indigenous employment was also falling, while raising life expectancy levels remained a challenge.
Rudd, who launched what has become a bipartisan strategy to close the gap on indigenous disadvantage, said it was critical to maintain "political commitment, policy effort and funding support" to better Aboriginal lives.
"With strong political leadership, prepared to make a difference, with policy consistency and creativity, and with funding resolve, we can build an Australia where the First Australians are not simply an integral part of our national identity," he said Monday.
"But (they) are full and equal partners in the charting of our national future as well."
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