APOLOGY ACCEPTED: Jakarta Governor Sutiyoso (left) with Australian Ambassador Bill Farmer after a meeting in Jakarta yesterday. -- AP

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The governor urged hundreds of protesters who demonstrated outside the Australian Embassy for the second day yesterday not to overreact or create anarchy over the incident.

Mr Sutiyoso had complained that Sydney police entered his hotel room on Tuesday using a master key while he was asleep, and urged him to give evidence at an inquest into the death of five Australia-based journalists in East Timor in 1975.

Infuriated by the incident, he cut short his visit and flew out of Sydney the same evening.

Once home, he demanded an apology from Australia while the Indonesian government said the way he was treated was unacceptable.

At a press conference yesterday after a meeting with Australia's Ambassador to Indonesia, Mr Bill Farmer, Mr Sutiyoso said: 'Personally he apologised about that incident to me...I forgive him.'

He added: 'We are a nation with a big heart. We have to forgive.'

New South Wales Premier Morris Iemma also wrote to Mr Sutiyoso to say sorry, news reports said yesterday.

'I apologise for the distress and inconvenience caused and regret your early departure from New South Wales,' Mr Iemma wrote in the letter, which was released to the media.

Mr Iemma had earlier refused to apologise over allegations that the police had been 'rude and offensive'.

He had insisted that 'no offence' had been intended, and pointed out that the police and judiciary were independent of the state executive and acted separately from the New South Wales government.

Mr Farmer told reporters after yesterday's meeting with Mr Sutiyoso that the New South Wales government had initiated a formal inquiry into the incident.

He added: 'I deeply value the governor's assurance to me that he remains committed to working with us to develop a relationship that benefits both Indonesia and Australia.'

Both men shook hands for the cameras following their meeting.

Australia's Foreign Minister Alexander Downer said he understood how Mr Sutiyoso might have felt humiliated by the incident.

'If it is true, as he alleged, that two police officers entered his room without knocking while he was having a rest and asked him to appear before a coronial inquiry, it doesn't come as a surprise that he took offence,' he said.

Mr Sutiyoso had been in Sydney since Sunday at the invitation of Mr Iemma to promote ties between Sydney and Jakarta.

He was unaware that an inquest was being held in the city on the death of the journalists in East Timor in 1975.

Indonesia has said that the five journalists were killed in crossfire when Indonesian forces entered East Timor at that time, but friends and relatives of the dead newsmen accuse the Indonesian army of executing them after they attempted to surrender.

The issue has been a source of tension between Australia and Indonesia for the past 33 years.

Mr Sutiyoso, a former lieutenant-general, was an army captain at the time when the Indonesian military occupied East Timor.

At the press conference yesterday, he reiterated that while he had been in East Timor three times in 1975, he had never entered Balibo, where the five journalists were killed.

Although Canberra seemed anxious yesterday to smooth any ruffled feathers caused by the incident, the issue is unlikely to go away.

The Sydney Morning Herald yesterday reported that special forces captain Mohammed Yunus Yosfiah, who led the covert Balibo attack, had given the order to shoot at least three of the five newsmen.

And non-commissioned officer Christoforus da Silva had stabbed one of the journalists in the back with a military knife, the newspaper said.

Relations between the two countries may be further exacerbated should attempts be made to prosecute these two men for alleged war crimes.

Such a move would require their extradition to Australia, a demand that Jakarta is highly unlikely to support.

salim@sph.com.sg

rogmaynard@compuserve.com