NSW Police has apologised for using headscarves on two officers pretending to be terrorists during a training exercise after it was found it racially vilified Palestinians and Arabs.

The NSW Civil and Administrative Tribunal in May said it unreasonable and unnecessary for the force to use the scarves during the drill at Sydney's Central station in October 2017.

The exercise involved about 200 people - including police and other emergency services - to test the co-ordination and response to a terrorist or high-risk incident.

The drill at Sydney's Central Station in 2017 involved around 200 people, two of whom were "active armed offenders". (NSW Police)

The drill included two "active armed offenders" using what looked like semi-automatic firearms holding "hostages" and wounding some with knives.

The tribunal said balaclavas or masks could have been used on the officers acting as the perpetrators instead of clothing identified with particular cultural communities in Australia.

"We find that NSW Police Force, by allowing the two police officers portraying the armed offenders to wear keffiyehs associated with Palestinian and Arabic people, racially vilified Palestinians and Arabs," the tribunal found.

The NSW Civil and Administrative Tribunal found that Palestinians and Arabs were racially vilified by the portrayal of the armed offenders in keffiyehs. (NSW Police)

The tribunal found that using the headscarves had the "capacity" to incite hate or serious contempt of Palestinians or Arabs but acknowledged NSW Police had no intention to vilify any racial group.

NSW Police today issued a statement acknowledging the decision.

“NSW Police Force apologises for the use of these headscarves in the exercise," it said.

The ruling followed a complaint from Sydney man Sam Ekermawi after the exercise was widely publicised online, in print and on television and radio.

He claimed the headscarves worn by the two "active armed offenders" were the same as those worn by Palestinians, Arabs, Middle Eastern people and Muslims and their use "incited hatred or serious contempt" of those people on the grounds of their race.