Prime Minister Kevin Rudd is preparing an official apology from his new centre-left Labor government when parliament resumes on February 12, overturning 11 years of conservative opposition.
"We will not be establishing any compensation funds," Rudd told local television after aboriginal demands for a A$1 billion ($884 million) reparation fund for victims of past policies.
"The intention is to build this bridge of respect between indigenous and non-indigenous Australia, " Rudd said. "(Then) we can get on with the business of closing the gap in terms of life expectancy, education levels and health levels.".
Aborigines are Australia's most disadvantaged group. Many live in third world conditions in remote outback settlements.
The 1997 "Bringing Them Home" report found Stolen Generation children, as depicted in the 2002 film "Rabbit-Proof Fence", were forcibly taken and placed in orphanages run by churches or charities, or fostered out to socialise them to European culture.
Some were brutalised or abused, but former conservative Prime Minister John Howard rejected an apology because the removal of aboriginal children between the 1870s and 1960s was done by past governments and could open the door to compensation claims.
Under public pressure, Howard in 1999 drafted a motion expressing "deep and sincere regret" over the removal of aboriginal children from their parents and called the Stolen Generation "the most blemished chapter" in Australia's history.
Conservative opposition leader Brendan Nelson said Rudd should focus on the "real issues" facing indigenous people, such as a life expectancy 17 years less than other Australians.
Rudd said the apology would be a "symbolic act" coming after a weekend furore over the burning of a national flag by an indigenous activist to mark Australia Day, which Aborigines call "Invasion Day" marking European settlement in 1788.
"Atrocities such as rape, murder and theft of land have all occurred under the banner ... and people are waving it around proudly," said protester Adam Thompson while burning the flag.
All six state governments have already made official apologies to Aborigines, who were governed under flora and fauna laws until 1967. A landmark referendum that year saw Australians vote to allow Aborigines to be counted in the population.
The island state of Tasmania last week approved a A$5 million compensation fund for 106 Stolen Generation Aborigines taken from their families, with State Premier Paul Lennon saying no amount could make up for the hurt suffered.
A total of 22 children of Stolen Generation members were to split A$100,000, while A$4.9 million was to split among 84 living applicants, giving them around A$58,000 each. "The payments I announce today to those whose lives have been so deeply affected by this flawed policy of separation are a symbolic recognition of the pain, suffering and dislocation they have experienced," Lennon said..