Roger Maynard, Sydney – Indonesia and Australia signalled a significant thaw in their relations yesterday, after Jakarta's Foreign Minister suggested an early resumption of military ties between the two countries.

Speaking in Canberra during a two-day visit, Hassan Wirajuda said the two neighbours could begin with soft military contacts such as staff exchanges and training, but not full-scale exercises.

Indonesia and Australia ended military co-operation after the East Timor crisis, when Canberra sent peacekeeping troops to the newly independent state. Until then Australia had regularly participated in joint army and naval exercises and had contact with Indonesia's elite Kopassus special forces battalion.

But the security treaty between the two countries was torn up in l999 when gangs of Indonesian-backed militia rampaged through the streets of Dili and outlying areas, killing and wounding many residents. Political and diplomatic ties were left in tatters, a point Mr Wirajuda acknowledged yesterday.

"I think we should be realistic of the background of the problems and the sensitivity of the issues following the East Timor population consultations," he told an audience at the Australian National University. "But Jakarta is now seeking a period of stability in relations, including a slow restoration of military links through nation-to-nation talks on security.

"I think we can start on soft projects, exchange of officers, training and also perhaps exchanges of visits – but not hard, joint military exercises at this stage. This present visit to Australia has been extremely useful in instilling a new sense of urgency to nurture and to build on Indonesia-Australia bilateral ties."

Playing down the deterioration in relations over the past two years, Mr Wirajuda said talk of a rift was overblown. "Fortunately they are more perceptions than reality," he insisted. "The reality is in fact continued and enhanced ties, certainly of burgeoning trade and people-to-people contacts."

The unexpectedly positive comments are the result of months of quiet diplomacy. Last night Mr Wirajuda was due to hold talks with Prime Minister John Howard in Sydney, paving the way for a meeting with Indonesian President Megawati Sukarnoputri in Jakarta early next year.

The Foreign Minister said Indonesia was keen to establish a regional forum of south-western Pacific nations including Australia, East Timor, Papua New Guinea, New Zealand and the Philippines. "Experience has shown that when we co-operate much can be achieved," he said.

It was a view shared by Australia's Foreign Minister, Alexander Downer, who said he was keen to build greater co-operation within the region.