Undertaking innovation in developing countries and transition towards knowledge-based economy is difficult without government intervention; necessity of balance between supply- and demand-side policies, the need for holistic view and the interconnections between government policy instruments has increased the complexity of interventions. Globally, statistics on scientific growth and outcomes of innovation show that there has been no balanced improvement in various dimensions of STI policies in Iran. Leading countries have been able to put this balance in place with a concept called policy mix. This paper tries to propose a policy mix to overcome these complexities and suggests suitable policy instruments via integration policy mix, system failures and multi-criteria decision-making methods. Our results indicate that the most important pragmatic policy actions for development and use of knowledge-based products in each category of system failure are issues such as establishing the necessary infrastructure and setting standards for quality assurance, transparency of government knowledge-based demand, designing and implementing a technology learning system, increasing investment of large firms in R&D, diversification of financial services for funding knowledge-based firms, using foreign investment in favor of improving local technological capabilities of big domestic firms. To implement these actions, 15 tools are proposed in a policy mix which were discussed and finalized by focus group method and semi-structures interviews.