Defense Minister Robert Hill said he expected details of a counterterrorism training agreement to be finalized by the end of 2005.
"Then it will need approval of the Philippine Senate, which might be quite challenging," Hill told Channel Nine television.
The countries are negotiating a "status of forces" agreement similar to that already in place between Manila and Washington, which overcomes constitutional constraints on foreign soldiers’ participation in training exercises on Philippine soil.
Hill said Australia wanted to help Philippine forces contain Muslim extremists in the country’s south.
"We think it is in our interest to help the Philippines more effectively meet the threat of terrorism in Mindanao and other parts of southern Philippines because we believe that that is not only a threat to them but also a threat to us," he said.
Hill said any agreement would impose clear limits on what Australian troops could do.
"I’m not suggesting military operations in the Philippines, I’m certainly suggesting we should be able to give them more support in training," he said.
Hill travelled to the Philippines to discuss the agreement last month, shortly after Australia’s Special Forces commander Mike Hindmarsh made a low-key visit to Mindanao.