NSW Police Force has been ordered to apologise for dressing two officers, who were pretending to be terrorists during a training exercise, in headscarves because it "racially vilified Palestinians and Arabs".

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

NSW Police Force

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

NSW Police Force

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.

The tribunal agreed they 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.

It has ordered the NSW Police Force to issue an apology for using the headscarves in the exercise and implement a racial vilification education program.