Circular Quay, Bondi or Surry Hills — which suits your trip.
Circular Quay or The Rocks puts the Opera House, Harbour Bridge and ferries to Manly within walking distance — best if your priority is the classic sights and you don't mind paying a premium for the location.
Bondi suits a beach-first trip with easy access to the coastal walk, though you'll be relying on buses or rideshares to reach the CBD sights. Surry Hills or Newtown are the middle ground — better food and bar scene, a short train or bus into the city, and generally cheaper accommodation than the harbour-front options.