The US and Indonesia are to expand co-operation on economic issues, security and climate change, the presidents of both countries have said.
US President Barack Obama said the US and Indonesia would expand trade relationships and increase prosperity.
He also criticised the recent elections in Burma as neither free nor fair and called for the release of jailed pro-democracy leader Aung San Suu Kyi.
On Wednesday Mr Obama will also speak at South East Asia’s largest mosque.
It will be his most high-profile attempt to engage the Islamic world since a landmark speech in Cairo in June 2009.
However, the White House says the president will probably have to cut short his visit by a few hours because of concerns over volcanic ash from Mount Merapi which could disrupt flights.
Speaking in Jakarta, Mr Obama said he had worked hard to repair ties with Muslim communities, but warned that some “misunderstandings and mistrust” were likely to remain.
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