Wakefield, west Yorkshire - one of England's largest metropolitan authorities - has been praised for its work with some of its most vulnerable pupils.
Office for Standards in Education inspectors commended its out-of-school study for excluded pupils, effective procedures for improving pupils' behaviour and support for young people in care.
The authority was reaping the benefits of making inclusion a priority, the report said. A team of headteachers, police, education welfare officers and youth offender experts had helped to keep the number of unauthorised absences at or below national averages. Levels of permanent exclusions have also been cut by 40 per cent since 1998.
However, the Labour-controlled council, which serves a former mining region, was criticised for allowing a cumulative deficit in its schools' budgets of pound;2.39 million in 1999.
Although this shortfal was forecast to fall to pound;730,000 by March, 12 of its 157 schools were still spending beyond their income.
Inspectors also said that schools were not given enough information about some council support services, making it more difficult for them to assess whether they could get better value from alternative providers.
The authority was praised for its handling of the transition from a three-tier school system, incorporating middle schools, to a primary and secondary school system.
* Support for literacy and numeracy.
* School attendance support.
* Use of computers in the curriculum.
* School improvement support.
* Governor support.
* Corporate planning.
* Financial support for schools.
* Use of computers in administration.
* Groundsbuildings maintenance.