Troops of India and China were locked in a 73-day stand-off in Doklam near Sikkim last year after the Indian side stopped the building of a road in the disputed area by the Chinese Army.
The confrontation underscored Indian alarm at China's expanding security and economic links in South Asia. China's ambitious Belt and Road initiative of transport and energy links passes through Pakistan-occupied Kashmir or PoK, to which India has strongly objected.
Now Prime Minister Narendra Modi's government is reversing course, apparently after realising its hard line on China was not working, and the Dalai Lama is facing the cold shoulder.
"We are moving forward with this relationship, the idea is to put the events of 2017 behind us," a government source involved in China policy said.
The idea is to "be sensitive" to each other's core concerns and not let differences turn into disputes, the source said.
The Dalai Lama has lived mostly in Dharamsala in Himachal Pradesh since 1959, when he fled a Chinese crackdown on an uprising in his homeland.
In Dharamsala, his supporters run a small government in exile and campaign for autonomy for Tibet by peaceful means. New Delhi has allowed the Dalai Lama to pursue his religious activities in India and to travel abroad.
This week, the Dalai Lama cancelled a visit to Sikkim, hosted by authorities there, officials say, lest it offended China.
Sikkim is south of the Doklam plateau where the military stand-off took place.
Even "thank you" rallies by Tibetans planned for New Delhi to show appreciation to India for hosting the Dalai Lama and his followers have been shifted to Dharamsala.
The foreign ministry said the government had not changed its position on the Dalai Lama.
"He is a revered religious leader and is deeply respected by the people of India. His Holiness is accorded all freedom to carry out his religious activities in India," spokesman Raveesh Kumar said.
But the government's recent attitude is in stark contrast with his former treatment.
China reviles the Dalai Lama as a dangerous separatist and his activities in India have always been a source of friction, and a tool with which India can needle China.
"Tibet has utility to irritate China, but it is becoming costly for us now. They are punishing us," said P. Stobdan, a former Indian ambassador.
China has blocked India's membership of a nuclear cartel and it also blocks U.N. sanctions against Pakistan-based terrorist Masood Azhar, responsible for attacks on India.
The Tibetan government-in-exile has been phlegmatic, expressing understanding of the shifting circumstances and gratitude to India for hosting the Dalai Lama for 60 years.
"The Indian government has its reasons why, these coming months are sensitive, and we completely understand and respect that so there's no disappointment at all," Lobsang Sangay, the head of the government in exile told reporters.
China has hailed better ties.
"Everyone can see that recently, due to the efforts of both sides, China-India relations have maintained positive momentum and development, and exchanges and cooperation in all areas have achieved new progress," Chinese foreign ministry spokesman Lu Kang said on Thursday.
Lu said China was willing to work with India to maintain exchanges on all levels and to increase mutual political trust and "appropriately control differences".
A flurry of visits is planned.
Next week, National Security Adviser Ajit Doval is heading to China and Foreign Minister Sushma Swaraj is due to visit in April.
PM Modi will visit in June for a regional conference and talks with President Xi Jinping.
The two sides are also expected to revive "hand-in-hand" counter-terrorism exercises when Defence Minister Nirmala Sitharaman visits China in April, a defence source said. The drills were suspended earlier.