We are reminded of our ambiguous place in the Asia-Pacific each time we change leaders. Each new prime minister seems to blunder into a diplomatic spat with our nearest neighbor, Indonesia, the new rising economic star of Asia and the world’s largest Muslim-majority country. Each unnecessary argument raises the risk of a more serious rupture between Canberra and Jakarta, as the politics of both countries are coarsened by their respective nationalist fringes.

Mr. Morrison, who became prime minister following the latest party coup in August, fell into this trap when he floated the idea of moving the Australian Embassy in Israel from Tel Aviv to Jerusalem. Indonesia was embarrassed by the timing, and outraged that it wasn’t consulted. The Palestinian foreign minister, Riyad al-Maliki, happened to be visiting Jakarta on the day of the announcement.

In previous disputes, Indonesians did not have the clout to harm Australia’s interests. This time, however, the Indonesians are flexing their economic leverage — and Asia is watching.

Mr. Morrison had hoped to use the summit meeting of Southeast Asian nations in Singapore last month, his first outing as leader on the regional stage, to sign a free-trade agreement with the Indonesian president, Joko Widodo. But that deal is paused until the prime minister clarifies whether he intends to move the embassy.

Mr. Joko has his own election to fight next year and cannot afford the perception at home that he has compromised the Palestinian cause. And so the history of these two Asian neighbors repeats in stalemate as short-term politics in both democracies prevents an easy resolution to the dispute.

Australia has a direct stake in Indonesia’s success. Our overriding interest is for Indonesia to remain an ally in the fight against regional terrorism, and to become an active partner in helping check the unilateral impulses of China.

The key to this engagement is openness and mutual respect.

Mr. Morrison displayed neither quality in his handling of the embassy dispute. At home, it might have been excused as a rookie error. But in the region, it reaffirmed a pattern of Australian insensitivity and unreliability.