"The picture that emerges is increasingly one of two very different groups of countries: those that have benefited from development and those that have been left behind," the report said.
The report also finds problems extending beyond Africa: 1.1 billion people living on less than a dollar a day, and 2.7 billion without access to proper sanitation.
The report warned that the U.N. "millennium targets" to halve global poverty by 2015 would not be met without radical policy changes, and found that 900 million people worldwide feel that they are victims of discrimination.
Of the 177 nations included in the U.N. Development Index, African nations occupied all but three of the last 30 places. After decades of edging forward in step with other regions, 13 African nations have seen their development rating decline since 1990.
Last on the list for the seventh year running was Sierra Leone, which is still struggling to recover from years of civil war. Just above it were the West African neighbors — Niger, Burkina Faso and Mali.
According to the report, which is based on 2002 data, a citizen of Sierra Leone can expect to live to just over 34 years. At the other end of the ranking, Japanese have an average life expectancy of 81, Swedes 80.
For the fourth year running, Norway topped the overall ranking — which takes in life expectancy, income and educational attainment. It was followed by Sweden and Australia.
Of the top 20 nations, only Australia at third, Japan at ninth and New Zealand at 18th were outside Europe or North America. The United States was ranked eighth, a fall of one place from last year.
The world's newest nation, East Timor, was included for the first time and ranked at 158, the lowest outside Africa. The other lowest non-African nations were Haiti at 153 and Yemen at 149.
Israel was the highest-ranked Middle Eastern nation at 22, followed by Bahrain at 40. The Palestinian Territories were ranked 102.
About 30 nations were not included because of insufficient data, including Afghanistan, Iraq and Liberia. But some data was available for Iraq — between 1990 and 2002, infant mortality there rose from 50 to 125 deaths in 1,000 births.
Just two mainland African nations made the top 100 — Libya at 58 and Tunisia at 92.
The biggest increase from the 2003 list was recorded by Albania, which has been recovering from an economic crisis in the late 1990s. A 30-place surge to 65th position hoisted Albania almost 50 places ahead of Europe's poorest nation — Moldova, which languished in 113th position.
Also upwardly mobile were Armenia, up 18 places to 82, and St. Kitts and Nevis, one of the world's smallest countries, which climbed 12 spots to 39.
Other former British territories in the Caribbean fared less well. Belize suffered the biggest drop, 32 places to 99, followed by Dominica, which slipped to 95th place, down 27.
The Development Report said the need for more tolerant polices was growing as increased immigration means record numbers of people live outside their homelands.
It said the world's nearly 200 countries contain some 5,000 ethnic groups. Two-thirds of all nations have an ethnic or religious minority that makes up at least 10 percent of the population, it said.
"Some 900 million people, about 1-in-7 of the world's population, belong to groups that believe themselves to be discriminated against or disadvantaged," said Mark Malloch Brown, administrator of the U.N. Development Program.
The report did not provide a complete breakdown of the figure, but mentioned groups ranging from African-Americans to Eastern European Gypsies, and from Kurds in Turkey to indigenous people in Latin America.
Basing its data on research by the University of Maryland, the United Nations pointed to more than 200 groups "that face political disadvantage or discrimination based on ethnic, linguistic or religious identities."
It said 130 million faced direct discrimination as a result of public policy. "The rest are discriminated against because of social customs in the country or the lingering effects of historic discrimination," the report added.
As examples, the report said only two of Brazil's 33 Cabinet ministers are Afro-Brazilians, although the group makes up almost half the country's 178 million population. It said Myanmar denied nationality to 250,000 members of the Muslim Rohingya minority, while 300,000 members of the Baha'i religion in Iran are effectively regarded as "non persons."
While last year's report warned it would take Africa until 2147 to reach the poverty target, Malloch Brown said the latest data showed poverty was increasing.
"If present trends continue, poverty in African will never halve," he told a news conference to launch the report.