A couple of points:
1) The Howard govt did basically everything it could to avoid a war with Indonesia. Although it meant it took longer than ideal, in the deployment of Australian peacekeepers in E. Timor, the Howard govt did wait until Indonesian forces had left & it was obvious that Indonesia wasn't going to object to Australian intervention.
2) Australia deliberately went around the region, in fact around the globe, & got other nations to deploy peacekeepers to E. Timor as well as Australian troops. So we got troops from the UK & NZ, but more importantly Thailand & Malaysia (amongst others). The message, hence, being sent to Indonesia was don't play up or you'll have basically all of your neighbours at war with you & then some.
3) There was an actual engagement on the border of E. Timor between Australian troops & Indonesians within a few days of the initial deployment. If memory serves at least one Indonesian was killed & several more wounded. There were no major Australian casualties. Importantly, both sides were very quick to downplay the incident & nothing war-like-alert etc was entertained by either side. It was explained away as an accident.
4) In a similar fashion, there were several engagements along the E. Timor border between the peacekeepers & the so-called Timor militias. In fact one NZ soldier was killed, & his body mutilated, which really pissed off the peacekeepers but they continued to do their jobs in a discipled & professional manner as one expects. Interestingly enough, not long after this incident, the Indonesians themselves pretty much withdrew their support, overt or otherwise, from these militas & they soon became forgotten. Whether there were some "high-level" governmental discussions, between Australia & Indonesia over the situation, I wouldn't know, but it's interesting to note the coincidence of events.
So in order to get a war going, between Australia & Indonesia over E. Timor, these factors have to be removed from the scheme of things. Importantly, though, Australia under the Howard govt would not have intervened with military forces in the first place if the first two points above hadn't come to pass. Consequentally, there wouldn't be any war. The Howard govt would have complained, like what previous governments had done since 1975, & that'd be all IMHO.