Despite improvements, inspectors found that progress since the first inspection in 1997 has been, "slow, insufficient and fragile".
"This is an education authority which is still failing," the report says. "Hackney schools have little confidence in the capacity of the service to bring about school improvement. That lack of confidence is, on the whole, justified."
Planning for school improvement, intervention in schools causing concern, advice on curriculum and professional development and the language and learning service are all judged to be unsatisfactory. The LEA is also failing to meet its statutory duties on employment.
In some areas, little has improved since the report of the first inspection team 18 months ago.
"Few of the recommendations made in the 1997 report on the work of the inspection and advisory service have been tackled effectively," the new report says.
However, attendance, admissions and the planning of school places have all improved in the last year and are now satisfactory. And Liz Reid, the new director of education is praised for her "considerable" contribution.
The authority is still suffering from budget problems, described by inspectors as "daunting", and from an "ill-thought-out" service reorganisation. By last April, 25 schools were operating on a deficit.
Hackney is one of Britain's poorest boroughs. About 60 per cent of pupils are eligible for free school meals - three times the national average.
The high turnover of pupils is also a handicap. A quarter of pupils taking key stage 2 tests had not been at their school for all of their four junior years.