The government has yet to approve a formal resumption of counter-terrorism training and exercises between Australian troops and Indonesia's controversial special force, Kopassus.
But Defence Minister Robert Hill indicated that the government was moving in that direction.
"Australia supports a program to improve Indonesia's counter-terrorism forces," he said in a statement. "I would like to see some more training and exercises in that regard in the future. However, detail of that is yet to be agreed by government."
Similarly, the Australian Defence Force is considering the possibility for renewed training and exercises involving the Perth-based Special Air Service Regiment (SAS) and Kopassus.
"The Australian government would like to develop training and exercise opportunities with Indonesia's counter-terrorism forces," a defence spokesman said.
"However details of such opportunities are yet to be finalised. The bombings in Bali on October 1, 2005, highlighted the importance of continuing to work with Indonesia to combat terrorism. In this regard we have specifically taken steps to develop cooperation between the ADF and TNI (Indonesian armed forces) specifically in the areas of hostage recovery and counter-hijack."
The Sydney Morning Herald reported that the SAS and Kopassus were set to resume ties, with senior Indonesian officers invited to Perth next month to finalise a training and exchange program.
Defence links between Australian and Indonesia grew through the 1980s and 1990s, mainly between Kopassus and the SAS. But they ended abruptly in 1999 when Australia led the international mission to end East Timor.
Cooperation with Kopassus has always been controversial because of the organisation's long and well-documented record of involvement in human rights abuses in East Timor, Aceh and West Papua.
In a paper released late last year, Dr Damien Kingsbury, head of political studies at Deakin University, said ties with Kopassus should not be resumed because there was no evidence it had lifted its game.
"It is clear that Kopassus has been an organisation that has frequently, if not exclusively, operated in an illegal manner and that it has a substantial and serious history of human rights abuses, even by Indonesia's own somewhat flexible human rights standards," he said. "Based on evidence since 1998, it appears that Kopassus has not altered its methods of operation to bring them more into line with wider, if sometimes failed, political reform processes."