It's now more than two weeks since Prime Minister Scott Morrison flagged the proposal on the eve of the Wentworth byelection, and the diplomatic repercussions are still being felt.

While there is little doubt that such a move would please US President Donald Trump - were he to notice it - as it would align Canberra with Washington's decision to move their embassy earlier this year, the proposal has roiled the Australian foreign policy establishment because of the potential impact on our relationship with near-neighbour Indonesia.

Malcolm Turnbull's blunt assessment of what would happen if the proposal was implemented - "it would be met with a very negative reaction in Indonesia" - during his visit to Bali this week for meetings with Indonesian President Joko "Jokowi" Widodo and Foreign Minister Retno Marsudi has caused bad blood between the prime minister and his predecessor and kicked along debate.

It's in that context that the warning from Nadjib Riphat Kesoema, Indonesia's ambassador in Canberra from 2012 to 2017 and a friend of Australia, should be understood.

"The issue of Palestine, for the people of Indonesia, is very deep inside their hearts," he says.

"The [potential] move of your embassy of course makes people - many people and many organisations - think that this is not a friendly move towards Indonesia.

"It's difficult for the [Indonesian] government to convince the people that this is nothing to do with our [two nations'] friendship."

To that end, Nadjib says Australia should pursue a foreign policy more independent of the US and "become more part of Asia".

That's a polite way of suggesting Australia should not move its embassy to Jerusalem, nor recognise the city as Israel's capital.

Privately, allies of Turnbull say he is dismayed by his successor's byelection-eve embassy proposal, fearing it could risk the friendship and trade deal between the two nations, and hopeful the newish government in Canberra backs down.

The Australian government had already examined the possibility of moving the embassy to Jerusalem months ago, following Trump's move, with cabinet's National Security Committee informally considering - and dismissing - the idea.

The former PM struck up a close relationship with Jokowi and the pair were due to sign the long-delayed Indonesia-Australia free trade deal at the Oceans Conference this week.

While the signing didn't take place, Turnbull said publicly he believed there was no reason the agreement wouldn't be signed in the next few weeks.

Senior ministers in the Morrison government have told Fairfax Media that the concern over the embassy proposal is primarily coming from the Australian side and that their Indonesian counterparts have not raised the issue with them in private meetings.

In Jakarta, however, it's a little more complicated than that.

When Trump announced the US embassy would move, it sparked protests on the streets of the Indonesian capital.

That hasn't happened yet following Morrison's announcement of a review, but if Australia presses ahead and implements the move, such protests are possible.

For Indonesians, the rights of the Palestinians are a very sensitive issue.

The constitution of Indonesia, promulgated in 1945, states clearly that independence is the right of all nations and that colonialism must be abolished.

It's through that prism - Israel as colonisers, and the Palestinians as people who have a right to a homeland - that the issue is understood by many Indonesians.

Publicly, the Indonesian government has been critical of the proposal. Privately, hard heads in Kemlu, Indonesia's foreign ministry, say they understand the announcement was made for domestic political reasons.

"We understand it was about Wentworth. But we have asked the Australians not to follow through on this," says one seasoned observer.

Turnbull's assessment of the potential damage to the bilateral relationship if the embassy move goes ahead is accurate.

At this stage, the free trade agreement is not at risk of not being signed, but ratification of the document by Indonesia's parliament could be delayed if the embassy move goes ahead.

And as the April 2019 Indonesian elections approach, the opposition parties - led by presidential candidate Prabowo Subianto, an ardent nationalist who has thus far refused to buy into the dispute - could change course and use the issue to criticise Jokowi for doing the trade deal with Australia.

If that happens, and protests begin from hardline pro-Palestinian groups in Indonesia, the heat will be on Jokowi to delay or even drop the free trade deal.

In a choice between backing the Palestinian cause and securing re-election, or backing the free trade deal, Australia will lose out.

Evi Fitriani, an international relations academic at the University of Indonesia, is in no doubt that moving the embassy would affect bilateral relations and potentially delay the free trade deal.

"I think it can affect IA-CEPA [the trade deal]. Because in so many occasions Australia always says that both of us share the same values on many things, including human rights. In fact, if Australia considers moving its embassy to Jerusalem it is not in accordance with sharing the same values because Israel is so not pro-human rights in its action towards Palestine," she says.

"This issue is quite sensitive here in Indonesia now because the president is facing an election year. His opponents could exploit the situation if the government does not react properly to this issue.

"I don’t think it will go as far as cutting off diplomatic ties, but it could somehow push the signing of IA-CEPA until after the presidential election."

At the Singapore-based International Institute for Strategic Studies, research fellow Aaron Connelly says that at this stage it appears the Morrison proposal does not appear to have been "as damaging as some in Canberra have initially suggested, and feared. But keep in mind, the political context can change."

He says that much will hinge on whether the move actually goes ahead and whether Prabowo, or more likely his political allies, decide to use the issue to wedge Jokowi as the election draws closer.

"Indonesian officials and leaders read the newspapers, and they understand the domestic political context in which [the proposal] was made. They understand that no decision has yet been taken," he says.

"Many elites were annoyed by the timing [Palestinian Authority Foreign Minister Riyad al-Maliki was in Jakarta when Canberra announced the review], but they don’t want to damage the relationship with Canberra over it.

"The politics of this issue in Indonesia are unpredictable, and could shift rapidly. A decision to go ahead with moving the embassy to Jerusalem during the Indonesian presidential campaign risks taking control of the politics of the issue away from the elites and putting it into the volatile cauldron of Indonesian electoral politics. It is hard to anticipate how that will affect the relationship."

Until the review of the embassy move - likely by the end of the year - is completed by the Australian government, relations between Jakarta and Canberra will remain more uncertain than they have been for some time.