Australian Prime Minister Scott Morrison proposed the embassy move during a local election campaign last month, sparking concern from Indonesia and Malaysia.
Malaysian Prime Minister Mahathir Mohamad raised the potential embassy switch in a meeting with Morrison in Singapore on Thursday, later telling reporters such a move could increase the threat of terrorism.
“I pointed out that in dealing with terrorism, one has to know the causes,” Mahathir said. “Adding to the cause for terrorism is not going to be helpful.”
Some 60 percent of Malaysia’s population is Muslim.
Australian Treasurer Josh Frydenberg responded Friday, saying Canberra would make its own decisions. Frydenberg, the son of a Holocaust survivor, also pointed out past comments that the leader of Muslim-majority Malaysia has made about Jewish people.
“He has called Jews ‘hooked-nosed people.’ He has questioned the number of people that have been killed in the Holocaust. He banned ‘Schindler’s List’ as a movie being shown,” Frydenberg told reporters in Melbourne.
In an interview with the BBC last month, Mahathir said “the problem in the Middle East began with the creation of Israel,” and he defended his description of Jews as “hook-nosed” in his book, “The Malay Dilemma.”
“They are hook-nosed. Many people called the Malays fat-nosed. We didn’t object,” he told the BBC.
Mahathir also challenged historical accounts that 6 million Jews were killed in the Holocaust, saying the figure was 4 million.
In 1994, “Schindler’s List” became one of many films banned in Malaysia during Mahathir’s previous time as prime minister, with the country’s film board rejecting it as Zionist propaganda.
When asked by The Associated Press in an August interview about his past comments about Jewish people, Mahathir said “we should be able to criticize everybody.”
“Anti-Semitic is a term that is invented to prevent people from criticizing the Jews for doing wrong things,” he said.
Australia’s indication that it may follow the United States’ contentious move of relocating its embassy to Jerusalem from Tel Aviv was seen by many Australians as a political stunt. Critics called it a cynical attempt to win votes in a by-election last month for a Sydney seat with a high Jewish population. The seat was lost anyway, leaving the government ruling with the cooperation of independent lawmakers.
But on Friday, Frydenberg insisted shifting the embassy made sense, although it has also inflamed tensions with Australia’s closest neighbor Indonesia.
“Australia already recognizes Israel’s sovereignty over West Jerusalem. It’s where the Israeli Parliament (the Knesset) is. It’s where the Australian ambassador presents his or her credentials. It will be the capital of Israel under any two-state solution,” Frydenberg said.
Speaking on Friday, Morrison confirmed Mahathir had raised the subject of the embassy but declared that only “Australia determines Australian foreign policy”.
“I think what Josh said today was filling in the history of his (Mahathir’s) record on various issues over time,” Morrison told reporters on a visit to Darwin, where he is due to meet Japanese Prime Minister Shinzo Abe.
“Make no mistake. I will not have our policy dictated by those outside the country,” Morrison added.
Morrison said a decision on the embassy would be made by Christmas, but rejected fears the plan had caused collateral damage by placing in jeopardy a proposed free trade agreement with Indonesia.
“I do not conflate the issues,” Morrison told Australian Broadcasting Corp. radio.
“What we need to understand is that Australia has to set its own foreign policy and all I have said is that we would consider this question if we believed that it would advance the issues of the two-state solution.”
Indonesia is the world’s biggest Muslim-majority country, where tens of thousands protested against President Donald Trump’s decision in May to move the US embassy to Jerusalem.