We were very interested to learn through Mr. Hood of the Australian Liaison Office of the private approach which Dr.
Sjahrir had made to you with a view to the placing of the Indonesian case before U.N.O.  Although we understand that you do not expect an official request from Dr. Sjahrir unless and until his negotiations with Dr. van Mook should finally break down, we feel that you may like to have a preliminary expression of our views on the question of a reference of the Indonesian issue to U.N.O.
2. Both the Dutch and the Indonesians in their proposals of the 19th May and 17th June retreated from the position reached with such difficulty in early April  and unless they can be brought to agree to resume negotiations on the basis of the proposals carried back to The Hague by Dr. van Mook, there would seem to be no alternative to a steady deterioration in the position with the probability that the final withdrawal of our forces at the end of November will be the signal for the outbreak of bitter fighting.
In our view neither party can be confident that hostilities would secure for them an early and complete victory and both therefore should recognise that a political settlement reached before we cease to hold the ring must be in their mutual interest. We have accordingly just instructed Sir Nevile Bland and Mr. Mackereth to urge the Dutch and the Indonesians in their own interests to get to grips in serious negotiation.
3. It is to be feared, however, that in the belief that U.N.O.
will eventually provide them with a satisfactory solution Dr.
Sjahrir and his colleagues may be tempted to make no further effort to accommodate the Dutch in which case all hopes of a settlement by direct negotiation may vanish. We hope, therefore, that at any rate at the present stage you may be prepared to discourage Dr. Sjahrir from relying upon the Australian Government's intervention on his behalf.
4. From a long-term point of view we feel that reference of the dispute to U.N.O. may face us with a sharp division on a basis of national interest in which other Powers not directly interested may intervene. There are bound to be recriminations and it is more than doubtful whether the Security Council would be able to agree upon a solution satisfactory to both sides. You, as well as we, would with difficulty be able to avoid a worsening of relations with either the Dutch or the Indonesians.
5. We should be very grateful to learn your views and hope that we may take it that the Australian Government will consult with us before taking any action in the event of their receiving an official request for their intervention from Dr. Sjahrir.
Meanwhile I suggest that you should authorise us to mention Dr.
Sjahrir's approach at The Hague as this should help us to persuade the Dutch to take a realistic view of the situation.