Michelle Grattan – When Amien Rais arrived at the state banquet that President Megawati Sukarnoputri hosted for the Howards on Wednesday night, there was a distinct whiff of cynicism among the Australian travelling party. Only a day earlier Rais, one of the Indonesian Parliament's two speakers, had immensely complicated John Howard's visit by cancelling his proposed meeting with the Prime Minister.

Now here he was first in line among the dignitaries shaking Howard's hand. "He said 'Welcome back! Good to see you again'," Howard recounted yesterday. It was very Javanese. Rais had said he wouldn't meet Howard because the parliamentarians were critical of Australia's alleged interference in Indonesia's affairs. But he also wouldn't decline a presidential invitation.

At least that appears to have been the message given to the Australians. Rais's snub to Howard – reinforced when the Parliament's second speaker, Akbar Tandjung, also pulled out of a meeting – was substantially about domestic Indonesian politics. That's certainly how the Australians want it seen. Rais is an opponent of Megawati, and the Parliament was asserting itself against the executive.

But it also had a deeper message. And it affected how Howard has played his time in Indonesia. Despite the diplomatic messiness, the PM issued a tough rebuttal of Rais's claims even before he arrived in Jakarta. In his first day in Indonesia, Howard was still countering the Rais attack. One of Rais's allegations – that Australia had accused Indonesia of being complicit in people smuggling – might have been arguable, though Howard denied it. The other – that Australia was encouraging the independence movement in West Papua – was just not true.

Hugh White, director of the newly established Australian Strategic Policy Institute and a former adviser to Labor and Liberal governments, says: "The key thing that the incident demonstrates is that the big issue between Australia and Indonesia is not boat people – it's the continual erosion of trust in the relationship flowing from East Timor and spilling into the Papua issue. People in Indonesia believe – wrongly but deeply – it was Australia's objective to take East Timor off Indonesia and that it's the objective to do the same with West Papua."

Indonesia's Co-ordinating Minister for Political and Security Affairs, Susilo Bambang Yudhoyno, told Howard straight out why the Parliament snubbed him and then told journalists there were "three particular perceptions" that many Indonesians held. One was that Australia had improperly involved itself in the "East Timor commotion". The second that "some elements of people" – not the Government – in Australia had given support to the Papua independence movement. The third, there was a perception that on illegal migrants Australia had "pushed Indonesia to the corner by always blaming Indonesia for not taking adequate steps to handle the matter".

The fears held – despite Australian denials – by many Indonesians about West Papua are understandable. After all, it's only several years ago that Australia said – and certainly believed – that East Timor should remain part of Indonesia. International circumstances and Australian opinion changed. Some Indonesians no doubt believe the same metamorphose of opinion may happen with West Papua.

In his talks with Megawati and his speech to the state banquet, Howard went to great lengths to reaffirm Australia's position. "I told the President that Australia strongly supported the territorial integrity and the unity of the Indonesian nation and we understand the challenges of a vast country," he said after their meeting.

Aware that his visit had become more high risk, Howard also seemed especially careful not to push Megawati beyond her comfort zone on people smuggling. So instead of pushing for firm progress on bilateral aspects, he put the greatest stress publicly on this month's regional conference on people smuggling, hosted by Indonesia and Australia in Bali.

Indonesia has always argued this is an international, rather than a bilateral, matter. However, it has accepted from Howard five police runabout boats to enhance its capability to deal with the people traffickers.

The Opposition's foreign affairs spokesman, Kevin Rudd, says the problem of having the bilateral people smuggling talks result in a "non outcome is not so much damaging in itself but damaging because it doesn't create momentum". Howard has a lot invested in this three-day visit, which winds up today after a visit to Yogyakarta, a key cultural centre of the country.

Relations between Howard and Megawati, fraught during the Tampa crisis, have significantly improved since November 10. Howard's aim this week is to consolidate that. Big hiccups notwithstanding, he has done so.

But his uneasy demeanour at yesterday's news conference suggested it has been a rough visit for him. As he headed off to Yogyakarta, there were reports that some regional parliamentarians there said they would not attend events put on for him.

Howard is very aware of how the pictures on these trips look back home, but the Indonesian leg is producing bad images – summed up in a testy exchange between Howard and Channel 7 reporter Glenn Milne, who asked at yesterday's press conference: "Do you ever tire of coming up here with offers of assistance, aid and goodwill and being humiliated?" A tetchy Howard shot back: "Do you ever tire of excessively negative interpretations?".

On this visit, the public language between the leaders has been frank, even blunt. After their relatively short meeting, Megawati said: "We are convinced that the relations between Indonesia and Australia should be more realistic and rational in the future." In her banquet speech she was generous about Australia but also referred to the "ups and downs of relations" between the two countries over the years. Howard also did not gild the lily.

At the tangible level, the memorandum of understanding agreed on to counter terrorism marks a step up in the relationship. It's nothing like the security agreement of the Keating days. In retrospect that wasn't a very good idea, and neither side of Australian politics – let alone the Indonesians – would ever try such a thing again.

The anti-terrorism memorandum is useful politically and practically. The proposal came from the Indonesians, indicating they were engaged with Australia and with the issue. The Americans and some regional countries have been critical of Indonesia for not taking a strong enough stance against terrorism, and this will improve Indonesia's credentials.

The memorandum will provide a worthwhile exchange of information between Australian and Indonesian agencies on a range of law-enforcement and related issues. But its scope is limited. Howard was anxious to stress yesterday that none of the information exchanged would see Australia meddling in Indonesia's internal affairs. He had been asked whether Australia might share intelligence on Indonesian trouble spots such as Papua and Aceh.

The memorandum was the achievement of the visit. The failure to make bilateral progress on people smuggling was the limitation of it.

The openly expressed angst from Rais and other critics was an embarrassment and a restraint on the Howard trip. But it also contains a useful wider message for the relationship, which could be absorbed without significant damage because Megawati was as determined as Howard that their encounter should be positive.