By Muklis Ali

JAKARTA, June 13 (Reuters) - Australian Prime Minister Kevin Rudd met Indonesia's president on Friday to discuss the environment and further improving security cooperation that has helped smooth ties with Canberra's populous developing neighbour.

President Susilo Bambang Yudhoyono and the Australian leader signed an agreement to tackle greenhouse gas emissions from deforestation, Rudd told a joint news conference.

"This is important for the future," said Rudd, who inspected a red-coated presidential guard at the colonial-style palace after being met by a thunderous gun salute.

Indonesia, which hosted a U.N. climate change conference in December, has been a driving force behind calls for rich countries to compensate poor states that preserve their rainforests to soak up greenhouse gases.

Rudd has also been attempting to lift Australia's green credentials after ratifying the Kyoto climate pact.

Rudd said the two leaders had discussed further security cooperation within the framework of the Lombok Treaty, a defence pact agreed between the two countries in 2006 on the Indonesian island of Lombok. He did not elaborate on details.

The treaty aims to expand security cooperation, and also gives underlining support for Jakarta's sovereignty over restive provinces, an issue that has often dogged the neighbours' relations.

Indonesia tore up a defence pact with Canberra nine years ago when Australia led an international force in East Timor to restore order after the territory voted to break from Jakarta.

The two countries' relations also hit a rocky patch in 2006 when Canberra granted protection visas to 43 asylum-seekers from Papua, Indonesia's part of the island of New Guinea, who claimed they were being persecuted at home.

Australian opposition politicians and non-government groups fear the pact will give Indonesia a free hand to suppress groups seeking Papuan independence, something Canberra has denied.

At the news conference Yudhoyono touched on the fight against Islamic militants following bomb blasts in Bali in 2002 and 2005, where many foreign tourists, the biggest number of them Australians, were killed.

"Since then, Indonesia and Australia have agreed that we cannot be defeated by terrorism. We are working together to bring the offenders to the court and then work together to prevent another terrorist attack," Yudhoyono told the news conference.

Rudd is also due to meet the heads of the country's two main moderate Muslim groups. On Saturday, he will open an Australian-funded school in Aceh province.

Canberra was heavily involved in the aid effort after monster waves from the 2004 Indian Ocean tsunami devastated the province on the tip of Sumatra island and killed more than 230,000 people across the region.

The Mandarin-speaking former Australian diplomat, who flew in from Japan, another key strategic ally, is also trying to sell the idea of Asia developing a European Union-style community by 2020 to tackle challenges such as climate change, security and food. ($1=1.065 Australian Dollar) (Writing by Ed Davies; Editing by Jerry Norton)

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