1. Good press here on recent statements by you. Statements
intelligently reported. Indonesian situation is becoming main
interest. Emphasis you placed on welfare approach important as
Australia not prepared for any direct responsibility involving use
of Australian forces. Prime Minister well aware Australian
interests in preventing flare up and securing stability but
strongly believes we must avoid giving impression we are prepared
to intervene in ways other than diplomatic. General approach we
are following is to stress vital interests but to keep free of
military obligations. This is delicate course but with
Mountbatten's assistance we can probably succeed. Mountbatten
seems to agree with our general views and gives impression he is
not getting United Kingdom support against Dutch pressure. He is
particularly concerned to keep Dutch out for present but Foreign
Office representative Dening went as far as telling Indonesians
that British forces would get out when Dutch really ready to
enter. Such an approach will destroy basis of negotiations.

2. Soekarno's influence seems to be declining and he may be ousted
by extremists unless the Dutch show full readiness to conduct
negotiations with him immediately and on a realistic basis. Even
so the British will need to give him and other moderates greater
stature as an alternative to finding extremists in the saddle.

Both British and Dutch must also be prepared to bring extremists
into the negotiations along with moderates. Unless the above
conditions are faced, civil war is likely to develop.