Reference Dominions Office telegram D.1599  and immediately following telegrams  and New Zealand No. 286  to the Dominions Office. Peace Treaty with Italy.
We are advising Dominions Office that you will deal with these questions in person. Following are our comments, which we have not communicated to Dominions Office;
I. General Considerations (i) We cannot forget Fascist Italy's record as an aggressor since 1935 and as an enemy which cost many Australian lives. This suggests Italy should lose her colonial empire and any other territories to which she has no just claim. In deciding any disputed claims to the latter Italy's position as a former enemy must be fully weighed. It should be remembered that if Italy is conceded a position as a trustee state she will have a seat on the Trusteeship Council.
(ii) Our general interest in Italy's future is to see established a genuinely democratic regime capable of eliminating all Fascist remnants and of improving living standards for the mass of the Italian people. The tasks of such a democratic reconstruction must naturally fall mainly on the Italian people themselves. To this end it is essential that apart from economic assistance there should be no prolonging of direct Allied influence in Italian internal affairs. On our understanding of the Atlantic Charter it should be a matter for the Italian people themselves as to whether they will 'look to the West' or to the East. (See telegram D.1600). The Political and strategic consequences in the Mediterranean of their 'looking East' however, must be weighed especially if the 'last resort' in paragraph 4 D.1601 were adopted. 
(iii) As a measure likely to assist towards her democratic progress we agree that Italy should be given early opportunity of membership in the United Nations and encouraged to participate in other international agreements.
II. Reference D.1599, 1600 and 1601. Italian Colonies Following are points for consideration:
(i) Trusteeship provisions of the Charter should extend to the whole Italian colonial empire. Italy's bad record in colonial administration gives her little claim to consideration as a trustee for any of her former colonies. Moreover suggestion that Tripolitania should be an Italian trust territory overlooks economic liability on Italy's already exhausted economy.
(ii) Consideration of possible Soviet claims to share in administration of trust territories might take account of interest in trusteeship displayed by Russians and their experience in administration of dependent peoples. Assumption by Russia of international responsibilities under the Charter in field of welfare in addition to security functions already undertaken in principle might lessen danger of Soviet isolationism. On the other hand Russians have no experience in African problems. More important, any extension of Russian authority into African territory might complicate the strategic picture in the Mediterranean and Middle East. Australia has always had vital interest in British strategic position in this area.
(iii) Formation of a Greater Somalia together with Cyrenaica as British trust territories may invite criticism of disproportionate British gains and veiled imperialism.
(iv) It might be preferable to place Italian territories under direct trusteeship of United Nations in accordance with Article 81 of Charter. New Hebrides is a poor example of international administration and not a fair test. Failure in Danzig was due to external political factors and not a condemnation of principle of international administration. Main requisite for success would be in each case undivided responsibility of Administrator to Trusteeship Council. Three United Nations trusteeships might be created, Eritrea, Italian Somaliland and Libya. In the two latter cases there would be good grounds for selection of a British subject as Administrator. Special problems mentioned by United Kingdom are economic co-ordination in Somalia and strategic importance of Libya. These could be met by measures for sub- regional co-ordination between all Somalia territories, and by creation of a designated strategic area within Libya, for which United Kingdom would be obvious choice as trustee to Security Council. 
III. Draft Heads for Peace Treaty with Italy Following are our comments on summary of Dominions Office proposals in D.1603:
(1) Proposals outlined in paragraph 2(a), (b) and (c) seem satisfactory. 
(2) Paragraph 2(d) Trieste and Venezia Giulia. We suggest the following considerations are important:
(a) Italy was an original partner in the Axis aggression while Yugoslavia armies suffered some half a million casualties in the Allied cause and with little equipment held down considerable German and Axis Forces.
(b) The settlement of 1920 and subsequent Italian seizure of Fiume imposed a long standing injustice on Yugoslavia.
(c) A settlement following strict ethnic lines would leave mixed populations on either side and would deny Yugoslavia and Central Europe a vital outlet to the Adriatic in Trieste.
(3) Bearing in mind that one claimant is likely to be dissatisfied whatever the solution we favour Yugoslavia's claim to most of Venezia Giulia and to Istria as proposed.
(4) As to the city of Trieste, we recognise its predominantly Italian character but are very mindful of its great economic importance to Yugoslavia and Central Europe generally. While difficulties are involved in International administration we suggest that international supervision over a joint Italian- Yugoslav administrative authority for Trieste might be considered.
We favour the proposal that it should be made a free port with free communications access to Central Europe.
(5) Whatever the precise frontiers agreed on, it seems important that to minimise possible future difficulties, there should be complete as possible transfers of population and strict safeguards for any minority rights.
(6) We think it important that there should be no delay in reaching a final disposition of this area. Prolongation of Allied Military Government has already induced considerable friction and it is most desirable that genuinely representative civil administration, based on institutions freely chosen in accordance with local popular wishes, should function as soon as possible.