It has taken only one refugee boat carrying 43 people to all but sink the current relationship between Australia and neighboring Indonesia.

The boat, an outrigger canoe that beached itself in northern Australia in January, was not carrying the usual illegal immigrant cargo but pro-independence asylum seekers from the Indonesian province of West Papua.

And now, after all but one of them were granted temporary protection visas last week, relations between Australia and the world’s largest Muslim nation are in nautical terms taking water, if not actually sinking.

Indonesia has recalled its ambassador, indicated that it may withdraw from actively discouraging the reappearance of boatloads of ‘normal’ illegal immigrants sailing south from its shores and delayed indefinitely a ratification of Australian financial assistance to fight bird flu.

Jakarta even held up final approval for this week’s memorial service on the island of Nias for the crew of an Australian Navy helicopter that crashed with heavy loss of life during a post-tsunami aid mission.

If there is one thing observers in both countries unanimously agree upon in their otherwise differing interpretations of the crisis, it is that relations between Jakarta and Canberra are now as bad as at any time during the East Timor crisis in 1999.

Until the visa issue erupted last week, the relationship had soared to new heights of cooperation and friendship, helped by high level inter-government missions, and the rapid and generous aid effort launched overnight by Australia in the aftermath of the 2004 Boxing Day tsunami that killed perhaps more than 300,000 people according to some estimates along the western coastline of Sumatra’s Aceh region.

Australia and Indonesia have been worked closely on anti-terrorism initiatives, including joint training exercises and intelligence sharing involving Indonesia’s elite Kopassus special forces unit that has been accused over the years of human rights abuses across the archipelago including Aceh, the Sulawesi, Timor and West Papua.

All of this now seems to be in tatters. When immigration officials interviewed the asylum seekers they established a strong possibility that all but one had had been tortured or brutalized over their beliefs and were under Australian and international law entitled to a temporary protection visa, which in effect, means permanent residence.

The realization that such a decision would be made caused Canberra to send Foreign Minister Alexander Downer to Jakarta last month to alert the Indonesians in advance and assure them that Australia was absolutely committed to the continued recognition of West Papua as an integral and inviolable part of Indonesia.

But Canberra is in a very tight spot. It has to try and support human rights in West Papua while denying any comfort to the independence movement. The thrust of Australian policy has been to urge President Susilo Bambang Yudhoyono to achieve an equitable settlement of West Papuan concerns along the lines of an agreement he engineered with Aceh separatists in the aftermath of the great tsunami.

Central to the dispute in West Papua is the gigantic US-owned Freeport Grasberg pit, probably the world’s largest gold and third largest copper mine, just below the incongruously icy 4,800-meter summit of Puncak Jaya.

So far Grasberg has yielded about $100 billion worth of ore, and contributes at least $1 billion in royalties to Jakarta every year. The separatists want it closed.

Australian observers reflect uncertainty as to whether Jakarta has reacted so strongly to the visa issue to underline its determination to hold Canberra to its commitment not to let West Papua turn into another East Timor that could damage its national unity.

It has curiously led to Australia’s opposition Labour Party, which supports government policy on Indonesian relations, making the more detailed public statements reflecting the Australian position.

Labour’s foreign affairs spokesman, Kevin Rudd, says the decision to grant the group visas has been made in accordance with Australian law. Rudd says the Indonesian government ‘should consider cases where Australia has not agreed with their decisions, before reacting dramatically.

“Indonesia has to learn how to cope with differences of opinion,” he says. “We’ve had to handle the very light sentence given to Abu Bakar Bashir — a person responsible for the mass murder of Australians in Bali in 2002,” he said. “Yet we’ve been able to put that into the context of the overall relationship, which is important for both governments.” For a moment it seemed Jakarta would relent in its uncompromising reaction. Four days after the visas were granted, the presidential spokesman in Jakarta, Dino Djalal dismissed demands from a group of nationalist politicians to sever relations with Australia.

Djalal’s response said: “It just won’t happen, relations will remain as they are.”

He stressed that if Indonesia did cut its ties with Australia, it would be the Papuan separatists who would rejoice because that is exactly what they would like to see.

However this seeming breakthrough was quickly overtaken by the moves to at least stall cooperation in the fight against bird flu, the continued interception of would-be people smuggling activities, and even the Nias memorial service. Canberra is holding its breath. Jakarta holds all the cards.