Hamish McDonald, Asia-Pacific editor – The East Timorese President, Jose Ramos-Horta, is "sympathetic" to the Australian Prime Minister's request to set up a processing centre for asylum seekers in his country, but has not yet given his agreement.
It would have to be part of a regional agreement, involve no cost for his country, and be a "temporary" arrangement with time limits on the handling of refugee claims.
Mr Ramos-Horta said East Timor would not use agreement to bargain for concessions in other areas, such as a bigger share of benefits from the Greater Sunrise natural gas field in the Timor Sea, or access to seasonal work in Australia for Timorese.
"I personally am sympathetic to the idea, out of my humanitarian concern about providing assistance to people who flee violence and extreme poverty," he said from Dili yesterday.
"I would agree in the context of some international, regional arrangement and without financial liabilities for Timor Leste," he said, adding that his government would also expect timelines for processing cases and finding settlement in Australia or third countries.
Julia Gillard raised the matter in a phone call only yesterday, although he had spoken to her earlier after she took office. "I will have to consult with the Prime Minister, Xanana Gusmao, whom I will see only on Thursday," he said, adding: "It is not yet a 'yes'... I personally would never ever turn my back on any individuals fleeing persecution, fleeing violence."
The Nobel laureate recalled that in 2001, during the Tampa crisis, the then foreign affairs minister, Alexander Downer, had called him and asked if East Timor would take the Afghan asylum seekers on board the Norwegian ship off Christmas Island. He had agreed, but in the end the refugees were taken to Nauru and Manus Island under the "Pacific solution".
The New Zealand Prime Minister, John Key, also received a phone call from Ms Gillard on Monday evening. The 30-minute conversation was the first time the regional processing centre had been raised, Mr Key said.
No asylum boats have reached New Zealand shores, and the country is likely to be asked to accept approved refugees from the centre for resettlement.
Mr Key said New Zealand would neither increase its refugee quota of 750, nor accept a reduction in the quality of refugees it takes, nor sacrifice security checks. "We are prepared to sit down with the Australians," Mr Key said.
"But the solution from our perspective has to ensure that it acts as a strong deterrent for those who are engaging in people smuggling and doesn't act as some sort of magnet to increase the number of boats that are coming to Australia – and maybe one day to New Zealand."
In Indonesia, Sri Lankan asylum seekers reacted with confusion, then sadness, after Ms Gillard said any attempt to reach Australia was likely to result in their being sent home.
At first pleased to hear that the freeze on processing would be lifted, they were devastated by news the UN guidelines were now much tougher for them to be resettled in Australia.
[With Kirsty Needham and Tom Allard.]