Australian Defence Minister Stephen Smith formally apologised in parliament to people abused while members of the country's Defence Force on Monday.
It is part of the federal government's response to a review which the minister says has received about 750 plausible allegations of abuse, the ABC reports.
An independent taskforce that will investigate the issue will oversee a new compensation scheme that will give victims up to $A50,000 each.
AAP reports Mr Smith said the Australian Defence Force had demonstrated the highest standards of professionalism, courage and sacrifice in peace and war.
But not all members had been treated with the decency required of those high standards.
"To those men and women in the Australian Defence Force or the Department of Defence who have suffered sexual or other forms of abuse, on behalf of the government, I say sorry. You should never have experienced this abuse," he said.
That was echoed by Defence Force chief General David Hurley.
General Hurley told defence personnel the number, nature and range of allegations showed some defence members had failed to understand the responsibility of rank, AAP reports.
"Rank is a privilege and not a licence for domineering, belittling or predatory behaviour," he said.
Defence will have to pay tens of millions from its stretched budget for a new task force to investigate longstanding abuse in its ranks and to compensate victims.
The minister has acknowledged the compensation bill alone would run to $A37.5 million if each of 750 people who have complained of past abuse is awarded the maximum.
Then there Is the cost of the task force, headed by retired West Australian Supreme Court judge Len Roberts-Smith, to investigate the individual cases and report back to the government next year.
Mr Smith told reporters defence would bear the costs.
The proposed task force, which will examine individual cases behind closed doors, falls short of the royal commission some sought.
But Mr Smith said if required, he would call a royal commission to examine two specific areas - the alleged abuse of junior sailors, as young as 13, at the former West Australian naval training establishment HMAS Leeuwin, which operated from 1960 to 1984.
A commission could also examine claims some Australian Defence Force Academy (ADFA) graduates - the so-called ADFA 24 who were responsible for abuse at the college in the 1980s and 1990s - now hold senior defence positions.
The task force and compensation scheme follow a report by law firm DLA Piper, commissioned by the government to examine a large number of allegations of abuse dating from the 1950s to the present.
Those emerged in the wake of the ADFA "Skype scandal" last year in which a junior cadet videoed himself having consensual sex with a female cadet and streamed the imagery to other cadets without her consent.