Martin Scorsese is rightly the most lauded living American film-maker - a beacon of integrity as well as a brilliant talent. But his bloody, visually gorgeous new epic, Gangs of New York, set in Civil War-era Manhattan, distorts history at least as egregiously as The Patriot, Braveheart or the recent remake of The Four Feathers. In its confused way, it puts even the revisionism of Oliver Stone to shame.

The film works so hard to make mid-19th-century Irish-American street gang members into politically correct modern heroes (and to fit them into Scorsese's view of American history as one long ethnic rumble) that it radically distorts a great and terrible historical episode.

It treats the founding Anglo-Saxon Protestant culture of America with an ignorant contempt - where it doesn't cleanse it from history altogether. Generally speaking, Hollywood sees that culture not as the root of treasured democratic freedoms, but as a fount of snobbery and dreary conformism. The paradoxical result of this Hollywood faux-Leftism is that the movie ends up casually glossing over the suffering of black Americans.

Gangs begins with a brutal battle in 1846 between two armies - "natives" (presumably Protestant) and immigrant Irish Catholics - for the control of the lawless Five Points area of Lower Manhattan. The leader of the Irish (Liam Neeson) is slain before the eyes of his five-year-old son, by the Natives' leader, "Bill the Butcher" (a superb Daniel Day-Lewis). The son grows up to be Leonardo DiCaprio, a tough youth who comes back to the neighbourhood 16 years later determined to avenge his father's death.

By 1862, Bill the Butcher has now incorporated many of the Irish thugs - including DiCaprio - into his own criminal organisation. Eventually he comes to see the boy almost as the son he never had. When the time comes for the two of them to square off, with DiCaprio in charge of the reborn "Dead Rabbits" gang, the Civil War is casting its shadow over the city with the 1863 Draft Riots.

These began with assaults on police by Irish immigrants enraged by Lincoln's conscription order on July 11, 1863. Very quickly, they turned into a monstrous pogrom, with a 50,000-strong mob murdering and mutilating every black they could find.

The Coloured Orphans' Asylum was set on fire, followed by several black churches and the Anglican mission in Five Points. The city's small German Jewish population was also attacked. Panicked blacks fled to the safety of British and French vessels at anchor in the East and Hudson rivers. Many drowned. Those who were caught were often tortured and castrated before they were killed.

In the film, you don't see any of this. Instead, a voice-over quoting from telegraph reports briefly mentions some of the mob's racist violence. What you do see is the suppression of the riot: blue-clad troops massacring crudely armed civilians of all ages and both sexes. The rioters stand almost impassive, and are cut down by gunfire and mortar shells lobbed from warships in the harbour (a bombardment wholly invented by the film-makers).

The film's narrator claims - and it's a flat-out lie - that the mob was a multi-ethnic uprising of the city's poor, that Germans and Poles joined with the Irish immigrants against New York's epicene patricians and an unjust conscription policy that allowed the wealthy to buy their way out of military service for $300. In fact the city's 120,000 German immigrants, many of them Catholics, took no part in the riots, there were almost no Poles living in the city and the rioters were almost entirely Irish.

They were furious with the city's blacks because the city's free negroes were often skilled artisans, economically and socially a rung or two above the newly arrived Irish, many of whom didn't speak English.

Yet the film consistently portrays the "nativist" Yankees, led by Daniel Day-Lewis's Bill the Butcher, as racists and the Irish underclass criminals, led by Leonardo DiCaprio, as multiculturalists avant la lettre.

The film's misrepresentation of the "natives" begins early on. While the film's Irish Catholics have a vibrant, energetic culture, the "native" Americans merely have prejudice. And you would never know that New York's population included substantial numbers of Orange Ulstermen - a hundred people were killed in New York Orange-Green rioting as late as the riot of July 12, 1871.

Nor would you know from Scorsese's depiction that Yankees - Northern Americans of English, Scottish, Welsh and Dutch extraction - increasingly thought that they were fighting the Civil War to abolish slavery. In the words of their favourite battle hymn, Jesus died to make men holy, and they would die to make men free.

The ending of slavery isn't on Scorsese's map, because its inclusion would be too difficult: it would require honesty and courage to reveal that his heroes - the Celtic predecessors of today's beloved mafia - were on the wrong side of the most significant moral and political struggle in America's history.

Nor would you know that many Irish volunteers fought with spectacular bravery on behalf of the union. Instead, everyone villainous in Gangs of New York is either a white Anglo-Saxon Protestant or an Irish Catholic who has sold out to WASPs.

There's something bizarre about glorifying a subculture that fought to undermine Lincoln's war to preserve the union and end slavery. Scorsese is treating racist mass murderers as heroes and victims. Yes, the Irish were cruelly abused in their adopted country. But it's a strange modern fetish that assumes that victims cannot also be victimisers.

If, as the ad copy goes, "America was born in the streets", it was not in the squalid, savage turf struggles of the Five Points, but in the streets of Boston and Lexington in 1776 - where the people traduced here as having no identity or qualities outside their xenophobia, fought for the liberties that all modern Americans take for granted.

Jonathan Foreman is film critic of the New York Post.