A cable sent by the US embassy in Mexico City last January described the army as "slow and risk averse."
It said troops were not trained to patrol the streets or gather evidence to convict those detained.
However, the cables praise the Mexican government for its "unprecedented commitment" to take on the drugs gangs.
But the fight is being hampered by widespread "official corruption" and a lack of co-ordination.
The cable dated 29 January 2010 said the deployment of troops in Ciudad Juarez - a border city at the heart of the drugs war - had failed to reduce violence.
Troops were not trained for law enforcement operations, and only 2% of of people arrested in the city were charged with any crime, it says.
The Mexican navy is seen as more effective, particularly in the operation in which the cartel leader Arturo Beltran Leyva was killed - an operation that, the cable says, was based on US intelligence.
Losing control
But security institutions were often "locked in a zero-sum competition in which one agency's success is viewed as another's failure, information is closely guarded and joint operations are all but unheard of."
Another embassy cable sent in October 2009 quotes a senior Mexican official as saying his government was worried it was losing control of some regions to the drug gangs.
"We have 18 months, " then-undersecretary of the interior, Geronimo Gutierrez, is quoted as saying, "and if we do not produce a tangible success that is recognizable to the Mexican people, it will be difficult to sustain this confrontation into the next administration."
"It is damaging Mexico's reputation, hurting foreign investment, and leading to a sense of government impotence."
More than 30,000 Mexicans have been killed in drug-related violence since President Calderon began deploying troops to fight the cartels four years ago.
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