"Australia should be open-minded to this", Mr Morrison said.
Morrison's Liberal government holds only a one-seat majority and a loss in the election would eviscerate it.
However, Indonesian government has not made any representations to Australia about the free trade agreement or whether it was in jeopardy, Foreign Ministry spokesman Arrmanatha Nasir said.
"What we are simply doing is being open to that suggestion", Morrison explained.
Jerusalem is claimed by both Israelis and Palestinians.
El avión en el que iba Melania Trump aterriza de emergencia
Según su jefa de prensa, Melania Trump reemprenderá su viaje a lo largo de este miércoles, pero se desplazará en otro avión . La comitiva se colocó toallas mojadas sobre sus caras hasta que el avión aterrizó en la base militar.
Morrison said Australia remained committed to finding a two-state solution to Israel's conflict with the Palestinians.
Indonesian Foreign Minister Retno Marsudi, speaking at a news conference with Palestinian Foreign Minister Riyad al-Maliki in Jakarta on Tuesday, called on Australia to avoid any step that would threaten efforts to forge peace in the Middle East.
A Tuesday statement published by the official Palestinian WAFA news agency claimed Morrison "harmed Australia's interests and its global standing", and urged the Australian opposition, civil society organizations, the business sector and the Arab and Islamic communities to press the Australian government to reconsider its position.
The US Embassy became the only foreign embassy in Jerusalem in May, and Guatemala and Paraguay followed Washington's lead days later and also moved their embassies, although Paraguay returned its mission to Tel Aviv last month.
The Ministry of Foreign Affairs and Expatriates concluded by saying it awaits the Prime Minister of Australia to reconsider these "damaging statements" to Australian interests and its global positions.
In a May article, Sharma wrote of the U.S. embassy move: "Now that the United States has broken the taboo, as a pragmatic and solution-oriented nation Australia should be prepared to lend our support to this common-sense proposition. Such action will only encourage the occupying state to refuse to return to the negotiating table with Palestine, thereby preventing the possibility of achieving a lasting peace, the goal which Mr. Morrison talks about", it added.
Ambassadors from 13 Arab countries met in Canberra on Tuesday, concerned that Australia's move to consider recognizing Jerusalem as Israel's capital could damage peace prospects there, Egypt's ambassador said.
Penny Wong, a lawmaker with opposition Labor Party, accused the prime minister of putting politics ahead of Australia's long-term national interest.