MEXICO CITY—As spiraling drug violence kills thousands in Mexico and police battle gangs for control of Brazil's drug-infested slums, a high-level international panel has concluded that the U.S.-led war on drugs isn't working.

"The global war on drugs has failed," said a report by the Global Commission on Drug Policy released Thursday. The report calls for a frank dialogue on the issue and encourages governments to experiment with the regulation of drugs, especially marijuana.

The...