Australia has pledged support to the United States to ensure further atrocities are not carried out in Iraq.
The offer came ahead of AUSMIN talks between the US and Australian defence and foreign affairs ministers in Sydney.
Australia is planning the deployment of military aircraft to drop aid packages in northern Iraq following a request from the US.
The Australian Defence Force has not been asked to play a combat role to back up US fighter jets bombing Sunni extremists who are laying siege to Iraqis on Mount Sinjar.
But Defence Minister David Johnston said ADF personnel could support US efforts to defend the city of Irbil from the Islamic State, also known as ISIL or ISIS.
“With respect to muscling up, we don’t telegraph our punches in any shape or form and there’s been no request for us to participate in combat,” he said on Monday.
“What the future holds in what is clearly a very troubled, confused and difficult situation in Iraq anybody can guess.”
But Senator Johnston said right-minded countries could not simply sit back and watch as atrocities unfolded without taking any action.
Prime Minister Tony Abbott, who will receive security briefings in London after a visit with MH17 investigators in the Netherlands, said the Islamic State is a terrorist “army” which poses extraordinary problems for the world.
He pointed to new pictures of an Australian child holding up the decapitated head of a slain Syrian soldier published in Australian papers on Monday.
“We see more and more evidence of just how barbaric this particular entity is,” Mr Abbott said.
The Labor opposition supports the ADF humanitarian effort in Iraq, but has not been consulted on any need to commit troops.
“The government has not spoken to Labor about that at all,” Labor leader Bill Shorten said.
“But when it comes to humanitarian relief, Labor is signed up for that.”
Mr Shorten said all Australians would be “shocked to their core” by the picture of the boy.
He demanded an explanation from the government as to how Khaled Sharrouf, a convicted terrorist wanted by Australia police for crimes in Syria and Iraq, was able to bypass the passport system to travel to Syria under its watch.
US military planes have conducted a fourth air drop of food and water to the displaced civilian refugees from the Yazidi religious minority, who have been cornered on the mountain by Islamic State forces.
The US on Friday began a campaign of air strikes aimed at halting the advance of the militants.
US Defence Secretary Chuck Hagel told reporters in Sydney on Monday the air strikes had been “very effective” and the US was considering further requests for support from the Iraqi government.
“We are working through specific areas of where the Australians can help,” he said, adding the US was co-ordinating a group of partners.
Senator Johnston and Foreign Minister Julie Bishop will meet with US Defense Secretary Chuck Hagel and US Secretary of State John Kerry in Sydney this week.
Iraq and Syria are expected to be on the agenda, while the ministers will also sign a new legal framework for the presence of US marines based in Darwin.
Australian diplomatic officials remain in Baghdad, but the Department of Foreign Affairs and Trade says it is closely monitoring developments.
DFAT is advising Australians not to travel to Iraq and has closed the Baghdad embassy to the public, the Smart Traveller website says.
“We will retain a small diplomatic presence in Baghdad, but due to the security situation the embassy will remain closed to the public until further notice,” the website says.
Consular assistance is no longer available within Iraq.