NSW Police have been ordered to apologise for racially vilifying Palestinians and Arabs during a counter-terror training video that featured officers wearing Middle Eastern headdresses.

Key points: During the exercise mock hostages stood with their hands on train windows, holding an IS flag

During the exercise mock hostages stood with their hands on train windows, holding an IS flag Two officers wearing headscarves pretended to stab commuters

Two officers wearing headscarves pretended to stab commuters Senior NSW police officers have been ordered to install a racial vilification education program

In the video, two police officers portraying active armed offenders wear keffiyahs, a headdress worn in Palestine and across the Middle East, and pretend to stab commuters at Sydney's Central Station.

The NSW Civil and Administrative Tribunal found the use of headscarves in the 2017 video was "not necessary" and could "incite members of the public to hatred" against Palestinian and Arabic people.

The police force apologised at the time but has been ordered to do so again, as well as introduce a racial vilification education program.

The education program, to be created in cooperation with the NSW Anti-Discrimination Board, will be mandatory for serving officers of the rank of Chief Inspector and above, as well as the Police Media Unit.

An apology will also be posted on the NSW Police Force website and Facebook page.

Palestinian leader Yasser Arafat wore a keffiyah. ( ABC )

During the exercise, mock hostages were forced to stand with their hands on the window of a train, holding up an Islamic State (IS) flag.

The officer who developed the exercise, Chief Inspector Colin Green, told the tribunal the use of headscarves was appropriate because officers portraying armed offenders were meant to simulate members of IS.

He said from social media posts "it appeared that ISIS/ISIL fighters wore such headscarves".

The tribunal found the scarves were widely associated with Palestinians and Arabic people who were not members of IS.

It gave the example of the late Palestinian leader Yasser Arafat who worn a keffiyah for many years while in public office.

"In the context of the whole exercise … the keffiyahs worn by the 'offenders' had the capacity to encourage the ordinary member of the public … to consider that Palestinians and/or Arabs were to be feared, despised, hated, and/or held in serious contempt as possibly or probably being terrorists," the tribunal found.

It found the police had no intention to vilify any racial group during the training exercise, but it also found that there did not need to be any intent for racial vilification to occur.

NSW Police said it took its obligations in relation to discrimination laws very seriously and was "carefully considering the judgment".