My 1603.  Indonesian Policy.
1. Since despatching telegram under reference the situation in Java has seriously deteriorated along lines we had anticipated.
The refusal of the Hague to sanction negotiations with Soekarno has led to delays during which Soekarno has lost influence and as matters stand he is not an effective medium for negotiations.
2. The responsibility for this deterioration is clearly that of the Hague. Mountbatten and both Van Mook and British representatives in the area have persistently recommended negotiations but the Hague authorities have undermined all attempts by stating publicly that if Van Mook is negotiating or intends to negotiate it is without authority and against instructions. The time may come if it has not already arrived when it will be essential for United Kingdom and/or United States America to make public this Dutch responsibility.
3. In the existing circumstances there are three alternatives- (A) The British to attempt to maintain administration and to allow the Dutch to take over gradually. This seems to be what is happening now. British forces are being reinforced and efforts are being made to keep control by a show of aerial strength. At the same time radio reports state that United Kingdom following upon further talks in London with the Dutch has agreed to permit the landing of 75,000 Dutch troops in the next three months in Java.
The Dutch do not appear to have sufficient available forces to take over immediately. In any case whether they take over gradually or immediately representatives of the Indonesian groups will be in no mood to negotiate if they see that undertakings have been given prior to the opening of discussions to the Dutch ensuring that their control is to be restored whatever happens during the talks. This alternative will involve long term strife and unrest and in any event cannot lead to a permanent settlement.
(B) The British to enforce order without permitting arrival of Dutch forces and ultimately to lay down terms of settlement. As in the case of alternative (a) this would involve grave political difficulties in India, Burma, Malaya and other places in this area resulting in serious decline in Britain's (including Australian) prestige in South East Asia. (It is to be noted that Indian troops are being employed on large scale against Indonesian groups.) The long term effects of this might be the creation of strong anti- British sentiment throughout South East Asia ultimately threatening Australia itself.
(C) The third alternative is for the responsibility for carrying through a settlement to be transferred immediately to an Allied Commission representing at least, repeat at least, United Kingdom, United States of America, Australia and New Zealand. It is already too late to expect the Dutch to negotiate bilaterally with the Indonesians. Similarly the stage has passed when the British could arrange for negotiations likely to be successful as they already have become committed in the eyes of the Indonesians to re-assert the Dutch Administration.
4. We cannot wait for formal inter-governmental consultations which are always prolonged before setting up an inter-allied commission and the following is the way in which we suggest that the third alternative can be put into effect.
5. It is desired that you immediately discuss the matter with the Secretary of State and if possible the President pointing out to him the dangers of the present situation and the dangers of the various alternatives which might be adopted. It should be suggested to him that he make an offer of mediation and propose the setting up of an Allied Commission. President Truman may be willing to point publicly to his discussions with you and associate Australia with the initial mediation offer. As part of the offer the Indonesian leaders should be informed that the Commission would arrange for negotiations and would recommend that, pending those, no Dutch forces be landed in Java or Sumatra and that the implementation of such proposals would depend upon the Indonesians co-operating in preventing further violence.
6. Every day's delay is resulting in further commitments by the British which ultimately will lead to British having to take complete responsibility and having very large forces involved.
Every day's delay is making civil war more imminent because Dutch forces are already on the way. We suggest you urge the quickest possible action by United States Government and an immediate announcement by the President even prior to formal consultation with any interested power.
7. We do not underestimate the extreme difficulties implied in these proposals. They may have to be a-mended in the light of your own estimate of what the American and British reactions are likely to be. Our assessment is that the situation is landsliding and what we have suggested above is a last minute attempt to achieve a solution of this problem which is vital to Australia by arbitration.
8. While Australia must take an active part in diplomatic negotiations such as this and do everything possible to prevent developments which ultimately may threaten her security, every precaution must be taken not to imply that Australia is willing to undertake military commitments other than those arising out of membership of the United Nations.
9. You will note from telegram to External Affairs Officer  that United Kingdom Government has not been informed. It is left to your discretion as to how and when the United Kingdom Government is informed.