Demos, which has close links to New Labour, urged the Government to improve the monitoring of young people at risk and to create a new minister for youth - reporting directly to the Prime Minister.
The report, Destination Unknown, was written by Demos's director Tom Bentley, who recently worked as special adviser to David Blunkett, Education and Employment Secretary.
Mr Bentley claims that the flagship New Deal policies - offering the chance of employment, education or voluntary work - are failing to reach many of Tony Blair's "lost generation". About 600,000 16 to 24-year-olds who are neither learning nor earning are not on the unemployment register - so are ineligible for help.
Of these, almost half are single parents or carers, while 131,000 are 16 and 17-year-olds who have left school. And 125,000 are looking for work but not claiming benefits. One in three has no qualifications.
The report also calls for "full service" schools to provide social, health and family services as well as education.