INDONESIA and Australia signed an agreement today aimed at drawing a line under a furious espionage row and paving the way for the resumption of full co-operation.

Ties between the neighbours sank to their lowest point in years in November after reports that Australian spies had tried to tap the phones of President Susilo Bambang Yudhoyono and his inner circle.

They were further strained by Australia’s policy of pushing people-smuggling boats carrying asylum-seekers back to Indonesia.

Jakarta recalled its ambassador from Canberra and suspended co-operation in several areas, including efforts to stop people-smuggling boats reaching Australia.

President Yudhoyono called for a code of conduct to be negotiated and, after months of talks on the issue, Australian Foreign Minister Julie Bishop and her Indonesian counterpart Marty Natalegawa signed an agreement yesterday.

In the agreement, Indonesia and Australia pledge to not use their intelligence agencies to harm one another and to increase co-operation.