When neighbours become ensnared by mutual insults and perceived slights the easiest, and most perilous, course of action is to escalate the dispute.

The tensions between Australia and Indonesia are fraught with such danger. A natural reaction to the exaggerated anti-Australian campaign in the Indonesia media, for example, is to reach for similarly damning retorts. Unfortunately, there is much fault and hypocrisy on the Indonesian side to draw on. And it did not begin with the Bali bombings.

For example, there is the revelation that members of Indonesia's notorious special forces, Kopassus, were involved in the recent fatal ambush of a group of Western teachers in West Papua, or the links between Indonesian military factions and armed Islamic "jihad" armies which have fomented terrible communal violence inside Indonesia over the past two years.

Faced with such truths it is easy, and briefly satisfying, to shout. The problems, however, will remain. Such is the geographic reality of Australia's place in the region. Indonesia will still be Australia's closest and most important neighbour. Australians will still be grappling with the excruciatingly difficult task of maintaining cordial working relations with a nation, and society, which is historically, culturally, ethnically and religiously different from our own.

At a basic human level these differences have never been insurmountable, as decades of individual friendships attest. This is the lesson which should have been reinforced by the shared pain and loss of the Bali bombings.

We might also have sought to understand the Indonesian President, Megawati Soekarnoputri, when she said the Bali bombings were "first and foremost an attack on Indonesia". She was not denying or belittling Australia's grief and shock. What she was referring to are the swirling darkforces of extremism – political and religious – which continually threaten Indonesia's fragile democracy, and the moderate, inclusive society over which she would wish to preside. Here is a common threat, around which co-operation and mutual respect should gather.

The question for Australia is how to engage with a government and security apparatus which is, within itself, challenged and corrupted by such dark forces. The only answer is with extreme discrimination. It is legitimate to avoid co-operation which might endorse what we hold as abhorrent. Australia's decision to sever ties with the Indonesian military over human rights abuses in East Timor is a case in point. The Howard Government should continue, for example, to shun Kopassus. But in the Bali investigation Australia appears to have got it right. The separation of the Indonesian military and police after the collapse of the Soeharto regime means the police no longer fall under the tainted military command structure. As such, they are the preferred partner for the Australian Federal Police. Other such preferred partners – moderate Muslim leaders, human rights activists, economic reformists – have long been courted by diligent, knowledgeable Australian diplomats, academics and aid organisations. But there is much more to be done. Australia must resist shrill name-calling and choose a harder course; to say less, and do more.