Peter Hartcher, Washington – The Australian Government is backing a Bush Administration proposal to resume US military co-operation with Indonesia in a bid to help Jakarta pursue terrorists.

US Congress ceased American assistance in response to atrocities in East Timor in 1999, when Australia also drastically scaled back its ties to the Indonesian military. But the Bush Administration's Budget proposed on Tuesday a resumption of all forms of assistance to Indonesia's armed forces (TNI).

In a substantial change in policy towards the Indonesian military, Australia has been quietly encouraging the Bush Administration to do exactly this, according to officials from both countries.

But the Prime Minister, Mr John Howard, last night – on the eve of his visit to Jakarta – received a major snub when a key Indonesian politician, Dr Amien Rais, said he would not meet him and other politicians said the visit should have been cancelled. Mr Howard later said he was disappointed but rejected claims that Australia was covertly supporting the independence movement in Irian Jaya. The restoration of US military ties with Indonesia – and Australian support for such a move – is an extremely sensitive issue that will provoke opposition from human rights advocates in the US and Australia. It might also generate a backlash from some political groups in Indonesia, where the military is struggling to overcome a reputation for abusing human rights in the Soeharto years.

While the TNI has long wanted a restoration of US military training and arms, it also resents any implication that it has been lax in pursuing Al Qaeda or other terror groups. Some US media have cited intelligence reports that hundreds of Al Qaeda operatives have been trained in camps in Indonesia.

And Jakarta, jealous of its sovereignty, is anxious to avoid direct US military operations in Indonesia.

The US Deputy Secretary for Defence, Mr Paul Wolfowitz, said last month that the Indonesian Government was "extremely weak" in some parts of the country and there was potential for extremists to set up there.

He said the US was willing to help and that the restrictions on American assistance "really need to be reviewed in the light of September 11". Last week the President, Mr George Bush, said in his State of the Union address: "My hope is that all nations will heed our call, and eliminate the terrorist parasites who threaten their countries and our own. Many nations are acting forcefully ... But some governments will be timid in the face of terror. And make no mistake about it, if they do not act, America will."

The Commander in Chief of US Pacific Forces, Admiral Dennis Blair, has been pressing key senators and congressmen to abolish restrictions on US military aid to Indonesia.

The US has sent a reported 650 troops into the Philippines, together with CIA advisers, to train the Filipino military in anti-terrorist tactics. And on Tuesday the Administration proposed a Budget that "strikes all language that restricts the Administration's flexibility" in advising and training and equipping the TNI, said Mr Tim Reiser, a key aide to the chairman of the Senate committee that decides foreign funding, Senator Patrick Leahy.

The Asia director of Human Rights Watch in Washington, Mr Mike Jendrzejczyk, said: "I think the Administration faces an uphill battle convincing Congress that President Megawati is serious about her commitments to military reform and accountability for human rights abuses."

A White House official said that Australia had been "consistently pushing the idea for a while now" in contacts with the US.

A spokesman for the Australian Embassy in Washington said: "Australian defence forces co-operate with Indonesian defence forces in a variety of ways and we think co-operation between the US defence forces and the Indonesian defence forces is useful." The subject was part of the Embassy's "routine dialogue" with the US, the spokesman said.

The legislative amendment that prohibits US military training for the TNI was instigated by Senator Leahy and bears his name. His aide, Mr Reiser, said that Senator Leahy would not agree to the Administration request "unless Indonesia were to demonstrate in a significant way that they were serious about reform of their military and holding people responsible for abuses of human rights.

"Senator Leahy believes it would be a mistake to undercut other key goals of our foreign policy – support for democracy, rule of law, human rights, and military reform – for the purpose of combating terrorism or anything else." He said the US should work to defeat terrorism in addition to other policy aims, not in place of them.

Comparing the TNI to a terrorist group, he said: "The Indonesian military engaged in acts which, for its victims, were no different from the victims of acts of terrorism." The Bush Budget proposes a total of about $US3.5 billion in new funding for economic aid, military equipment and training "for states on the front line in the war on terrorism", according to an Administration document.