British soldiers indulged in an "appalling episode of serious, gratuitous violence" on a number of Iraqi civilian detainees leading to the death of the 26-year-old Basra hotel worker, Baha Mousa, and the abuse of nine others.

Mousa, the father of two children, was "subjected to violent and cowardly abuse and assaults by British servicemen whose job it was to guard him and treat him humanely".

Sir William Gage, a retired appeal court judge who presided over the two-year inquiry, paints a devastating picture of military culture in general and in particular a group of soldiers of 1st Battalion Queen's Lancashire Regiment.

His report was described in the Commons by Liam Fox, the defence secretary, as "a painful and difficult read". Fox also called it "sober, focused and detailed". He added: "Above all I believe it to be both fair and balanced."

Mousa died on 15 September 2003 after spending 36 hours in detention when he and his fellow detainees were punched, sworn at and humiliated. A subsequent postmortem found that he had sustained 93 external injuries.

"For almost the whole of the period up to Baha Mousa's death … the detainees were kept handcuffed, hooded and in stress positions in extreme heat and conditions of some squalor," the report says.

Among the humiliations forced upon the detainees were toilets being flushed over their heads, beatings with metal bars, verbal abuse, being forced to "dance like Michael Jackson" and having lighter fuel poured over them.

One officer who visited the detention centre told the inquiry that the detainees looked as though they had been "in a car crash". After Mousa's death, the surviving detainees were subjected to further assaults. "Trophy photographs" were said to have been taken of them being beaten.

The report is studded with damning passages criticising officers and soldiers alike. Gage refers to a "loss of discipline and lack of moral courage". Behind this was ignorance of what was permitted in law, let alone morally, in handling detainees.

The report reveals how throughout the army and the MoD, from generals to the most junior private, from military interrogators to military lawyers, there was ignorance, wilful or otherwise, of a ban on five techniques, notably hooding, stress positions and sleep deprivation, introduced by the Heath government in 1972 after their use in Northern Ireland was condemned by the European court of human rights.

The ban was never mentioned in the training of officers at Sandhurst, Gage notes. Even after Mousa's death an order by Maj Gen Robin Brims, commander of all British troops in southern Iraq, reminding troops of the ban was not properly disseminated down the chain of command. The techniques continued even though the MoD admitted they were "prohibited and unlawful in warfare by reason of the Geneva Convention", the report says.

Hooding was "unjustified and wholly unacceptable", Gage said, and prisoner handling was "not given a high priority by the divisional commanders".

He castigates the MoD for its "corporate" and "systemic" failure to provide clear and consistent guidelines on how to treat prisoners or detainees. At the time of the Iraq invasion, "there was no proper MoD doctrine on interrogation of prisoners of war that was generally available," says the report. It also reveals there were "no standing orders in 1QLR as to the medical care for civilian detainees".

Dr Brian Fine, of Freedom from Torture, said of this finding: "The fact that the [regiment's] doctor had not received any training or instructions in respect of prisoner handling is surprising, but this can be no excuse for his failings. The general unwillingness of the medical personnel on the ground to take any steps to address the appalling conditions in which Baha Mousa and his fellow detainees were held, is completely unacceptable."

On the discovery of weapons at the hotel, which was used to justify the suspects' arrest, Gage commented: "I regard it as highly unlikely that the detainees or any of them were in fact involved in insurgent or terrorist activity."

However, he referred to "an unfounded rumour circulating" through the battalion that the detainees had been responsible for the murder of a popular officer or of members of the Royal Military Police.

The abuse of Mousa and nine other detainees "did not amount to an entrenched culture of violence in the [British] battlegroup – a reference to the rest of British forces in southern Iraq", Gage concludes. "The events of 14 to 16 September 2003 were indeed a very great stain on the reputation of the army and no doubt they did at the time greatly damage some of the good work done by 1QLR and other units in Iraq."

Sir Peter Wall, head of the army, said: "A step change in procedures means that I am confident that all soldiers deploying on operations today are fully trained in their legal responsibilities and can be in no doubt about the need to treat detainees humanely and with respect. Had that been the case in Basra in 2003, Baha Mousa would not have died in British custody."

The report of the inquiry, which was set up by the then defence secretary Des Brown in 2008, cost £13m, contains 73 recommendations. They mainly call for clear guidance for all British forces handling prisoners, including an absolute ban on hooding.

However, Fox rejected one key finding – the recommendation that the army introduced a blanket ban "on the use of certain verbal and non-physical techniques". Gage said the so-called "harsh approach" should be banned. It was a suggestion, Fox said on the advice of the army, that "I am afraid I cannot accept".