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ast week Australia'€™s Foreign Minister Julie Bishop and her counterpart, Indonesia'€™s Marty Natalegawa, flew to Bali to sign a Code of Conduct between Indonesia and Australia that will bring to an end the strained relations between the two countries caused by Australia'€™s alleged spying on President Susilo Bambang Yudhoyono and his wife.

The agreement will also see the upgrading of intelligence sharing, policing and anti-terrorism cooperation. It also comes at a time when plans are underway to commemorate the 12th anniversary of the first Bali bombings in October.

While most tourists visiting the holiday island would have given little thought to the significance of the signing of this agreement, the implications are significant for all travelers to Bali and the region amidst concerns of an increasing terrorist threat.

This year has seen the approval for the release of over 100 convicted Bali-bombing terrorists and their '€œhelpers'€ from Indonesian jails. But even more worrying, the recent events in Iraq and Syria have seen increasing numbers of young Indonesians answering the call to create what the emerging and extremely violent jihadist '€œarmy'€ IS (Islamic State, formerly the Islamic State of Iraq and the Levant) call a caliphate; a demand for all Muslims to help establish a pan-Islamic state.

Bring these events together at a time where many young Australians are visiting Bali for the first time, and disturbingly, attitudes towards holidaying in our '€œparadise island'€ have softened to a point whereby most Australians don'€™t even think about security issues any more.

Within Indonesia, the Iraq-based IS followers have many political and religious leaders deeply concerned. Already our government has warned of the threat to mainland Australia from returning Australian passport holders who have been fighting in the Middle East.

But the threat from Indonesians returning from Iraq and Syria as hardened terrorists is perhaps an even greater threat.

It is estimated that at least 100-150 Indonesians are now actively engaged with IS in Iraq and Syria.

Simultaneously, the radical Islamic cleric, Abu Bakar Ba'€™asyir, has sent a rallying call to his '€œtrue believers'€ from a jail cell in Java (where he is serving a 17-year jail sentence for his involvement in both Bali bombings) to join in the caliphate in the Middle East; and the world.

The expansion of IS in the region, and in Indonesia may, we hope, falter due to the extent of the shocking murder and mutilation of thousands of Christians and Shiite Muslims in the Middle East by IS followers.

And the positive news for the region is that the vast majority of Muslims in both Indonesia and Australia are vigorously opposed to IS and their use of Islam to inflict appalling crimes on innocent people of all religions.

Recently, the Indonesian Ulema Council (MUI) decreed a fatwa (a religious order) against IS, and over 3,000 followers of Ba'€™asyir'€™s Jamaah Ansharut Tauhid (JAT) have quit the organization over the actions of IS and their followers.

In Australia, Prime Minister Tony Abbott has already moved to soften his government'€™s plan to amend race-hate laws in order to '€œclear the air'€ with Muslim leaders whose support Abbott needs in stopping the spread and attraction of IS amongst young Australian Muslim men.

But to ensure Bali remains immune from another terrorist attack similar to that which devastated the lives of so many Australians and Indonesians in 2002 and 2005, both countries will have to work together to address this potentially dangerous expansion of IS in our region.

The Australian Federal Police (AFP) and Indonesia'€™s National Police (Polri) have an outstanding joint record in dealing with terror-related activities.

Polri used the sophisticated skills of our AFP to bring to justice most of the Bali bombers. And ironically, Australia'€™s spying agencies probably have played a key role in providing the Indonesian authorities with information about terrorist activities.

Indonesia'€™s incoming president, Joko '€œJokowi'€ Widodo, will be sworn in during October, and he has a good record of dealing with complex and sensitive matters including terrorist activities, having been the mayor of the central Java city of Surakarta. Jokowi knows that an extremist organization such as IS, who has committed brutal acts against fellow Muslims, could present a potential threat to Indonesia'€™s stability.

Jokowi also knows that the biggest '€œweapon'€ Indonesia has in defeating the IS activities within Indonesia, is its successful democracy, economic growth and religious tolerance.. Notwithstanding this, he will still be keen to maintain and develop close anti-terrorist links between Jakarta and Canberra.

Mutual cooperation following the restoration of the bilateral relationship between Australia and Indonesia, and in the early days of the Jokowi presidency, over terrorism issues could also provide the catalyst for broader and closer business and government relationships between our two countries, despite the new president predicted to be very domestically focused.

In the meantime, for tourists heading off to Bali, the good news is that Bali is a far safer place than in 2002 when 202 people lost their lives in one terrible night.

But the rise of IS, and the attraction of young Indonesian and Australian men to fight for the '€œcaliphate'€, should be a wake-up call for us all, while the need for closer relations between Australia and Indonesia'€™s new president will be even more critical.