Foreign Minister Julie Bishop is confident Australia and Indonesia can sign a code of conduct by August and get their relationship back on track.
Indonesian president Susilo Bambang Yudhoyono hopes by August both nations would have signed a code of conduct to restore ties after the relationship was rocked by a spying scandal last year.
It has been nearly six months since Indonesia recalled its ambassador and suspended co-operation with Australia after revelations Canberra spied on President Yudhoyono, his wife and inner circle.
Indonesia demanded Australia sign a code of conduct before the two countries start working together on people smuggling, defence and intelligence sharing.
Ms Bishop - who sent a draft proposal of the code to her Indonesian counterpart in December - is also optimistic a deal could be struck by August.
"I can't see any reason why it would not be," she told Sky News on Wednesday.
Prime Minister Tony Abbott called Dr Yudhoyono this week, conveying his regret for having to miss a Bali forum where the two were set to meet.
Ms Bishop said the conversation was "very cordial" and the Indonesian president understood the prime minister was preparing to hand down his first budget.
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