Indonesia and Australia on Sunday (26 February) agreed to restore full military ties. This comes after Jakarta suspended cooperation in January saying that insulting posters were found at a training base in Perth.
Australian Prime Minister Malcolm Turnbull made the announcement at a news conference in Sydney alongside Indonesian President Joko Widodo.
"President Widodo and I have agreed to full restoration of defence cooperation, training exchanges and activities," Turnbull said.
"We are both vibrant democracies that stand for mutual respect and diversity. "We share a commitment to democracy, freedom and the rule of law and a rules-based international order," he added.
The suspension of military ties triggered a minor diplomatic rift between the countries and resulted in an apology from Australia's army chief earlier this month. The military ties between the two countries include joint training, counter terrorism co-operation and border protection.
Widodo said, "That robust relationship can be established when both countries have respect for each other's territorial integrity, non-interference into the domestic affairs of each other and the ability to develop a mutually beneficial partnership."
Turnbull announced that Australia would open a consulate in Indonesia's Surabaya, east Java.
The Indonesian leader on Saturday also met with Australian businessmen and reassured them that Indonesia was a stable place for business. Widodo also said to The Australian newspaper that he would like to see joint patrols with Australia in the South China Sea if both the countries did not further worsen ties with China.
"As maritime nations and trading nations, Australia and Indonesia are natural partners with common interests," Turnbull said.
Jakarta also agreed to lower tariffs on Australia's sugar imports while Canberra will cut tariffs on Indonesian pesticides and herbicides.