Britain's special forces could be sent in to Iraq to assist the army as jihadist militants continue their surge across the country.
The government has also announced it will lend £3million in aid to victims of the violence as the prospect of civil war dramatically increases.
Officials are considering their military options alongside the US, and have discussed air strikes and the potential deployment of the SAS on the ground.
Foreign Secretary William Hague, said Britain was considering its options and looking at ways to help, but ruled out direct involvement.
Last night citizens in Dhuluiyah, 50 miles north of Bagdhad, were pictured celebrating on top of cars as they forced militants out of the area.
But the situation is looking bleak across the country with ISIS seizing a number of northern cities in the last week.
While also ruling out direct intervention by troops, Mr Hague said Britain was 'looking urgently at other ways to help', according to The Daily Telegraph.
He proposed 'counter-terrorism expertise, which would mean advisers from British Special Forces such as the SAS and intelligence agencies.
Mr Hague, speaking in London alongside the US secretary of state, John Kerry, said Britain could advise the Iraqi security forces on how to counter ISIS advances.
The Foreign Secretary gave no details, but in Libya in 2011, SAS units advised rebels despite David Cameron’s vow that there would be no 'British boots on the ground'.
He has held talks with Turkish foreign minister Ahmet Davutoglu 'urgently to co-ordinate approaches to the instability in Iraq and links to Syria conflict', he said on Twitter.
International Development Secretary Justine Greening said the initial tranche of emergency cash would allow agencies to supply water, sanitation, medicine, hygiene kits and basic household items.
Thousands have fled the sweeping advance of fighters from the al Qaida-inspired Islamic State of Iraq and the Levant (Isis) who have taken control of large areas including second city Mosul.
The Department for International Development (DfID) sent in experts yesterday to assess the scale of the crisis and it has now activated the UK's Rapid Response Facility.
'Iraq is facing serious humanitarian need,' Ms Greening said.
'The UK contribution to the international relief response will include initial funding for clean water, medicine and sanitation, as well as support for the UNHCR (the United Nations refugee agency) to provide dedicated safety and welfare teams to protect vulnerable women."
The news came as Iran - a key ally of Nouri al-Maliki's Shia-dominated administration in Baghdad - indicated that it was ready to provide assistance.
Iranian president Hassan Rouhani said his country had 'no option but to confront terrorism' and was 'ready to provide assistance within international law' if requested.
UN high commissioner for human rights Navi Pillay issued a warning about reports of war crimes, including summary executions and extrajudicial killings.
US president Barack Obama said he would be considering a range of military options - said to include air strikes - over the coming days.
The UK and US insisted it was for Iraq to deal with the issue however, with Mr Obama saying it had to be a 'wake-up call' for Iraq's leaders.
Prime minister al-Maliki has been widely criticised for fuelling the sectarian divide in Iraq by openly favouring the majority Shia population at the expense of the Sunnis.
'We can't do it for them and in the absence of this type of political effort, short-term military action, including any assistance we might provide, won't succeed,' Mr Obama said.
'So this should be a wake-up call: Iraq's leaders have to demonstrate a willingness to make hard decisions and compromises in order to bring the country together.'
Two thirds of the aid money will be used by NGOs in the region to supply clean water and sanitation, essential medicine, women-friendly hygiene kits and basic household items, the DfID said.
The rest would help protect vulnerable girls and women by funding dedicated UN safety and welfare teams to refugee camps.
The US president ruled out the possibility of putting American troops on the ground in Iraq, but said he was considering a range of other options drawn up by the Pentagon.
Administration officials said those include strikes using drones or manned aircraft, as well as boosts in surveillance and intelligence gathering, including satellite coverage and other monitoring efforts.
The US, which routinely has an array of ships in the region, has the aircraft carrier USS George HW Bush and an accompanying Navy cruiser in the northern Arabian Sea, while two Navy destroyers from the Bush strike group have been operating in the Persian Gulf.
The ships carry Tomahawk missiles, which could reach Iraq, and the USS George HW Bush is carrying fighter jets that could also easily get to Iraq.
Still, the president appeared to leave himself a clear off-ramp by making military action contingent on a 'serious and sincere effort by Iraq's leaders to set aside sectarian differences" between the nation's Sunnis and Shias.
'We can't do it for them,' he said. 'And in the absence of this type of political effort, short-term military action, including any assistance we might provide, won't succeed.'
US intelligence agencies assess that Baghdad is unlikely to fall.. Iraq's Shia soldiers who deserted en masse because they were unwilling to fight and die for Sunni towns such as Tikrit are much more likely to fight for Baghdad and its Shia-dominated national government, US intelligence officials believe.
Officials said they estimate there are several thousand insurgents, but well short of 10,000.
The security situation in Iraq rapidly deteriorated this week as the al-Qaida-inspired group Islamic State of Iraq and the Levant quickly overran Iraq's second-largest city of Mosul, Saddam Hussein's hometown of Tikrit and smaller communities, as well as military and police bases - often meeting little resistance from state security forces.
The militants have vowed to press on to Baghdad.
The rebellion has emerged as the biggest threat to Iraq's stability since the US withdrew its military in late 2011 after more than eight years of war. Mr Obama said the militants also pose a threat to US national security interests, which could ultimately be used as a justification for a unilateral American strike.
Over the past several days, the United States has urged Prime Minister Nouri al-Maliki to make his government more inclusive and avoid further alienating Iraqi Sunnis who are eyeing the insurgency as an alternative to supporting the Shia leadership in Baghdad.
That message was delivered to al-Maliki in a phone call from Vice President Joe Biden and also personally by Deputy Assistant Secretary of State Brett McGurk, who has years-long ties to the prime minister and is in Iraq this week to help negotiate a solution.
Following his statement, Mr Obama departed on a four-day trip to North Dakota and California. Officials said he had no plans to cut it short.
For the president, launching military strikes in Iraq would pull the US back into a conflict he declared over more than two years ago. The president has since tried to keep the US out of further conflicts, including in Syria, where a civil war is helping fuel the insurgency in neighbouring Iraq.
Secretary of State John Kerry, travelling in London, said a key difference between striking Syria and taking action in Iraq was the fact that Baghdad was specifically asking Washington for help.
'Under international law, it is clear that when a legitimate nation makes a request for help there is a legal basis for involvement in ways that are different,' Mr Kerry said.
Iraqi leaders have been pleading with the US for additional help to combat the insurgency for more than a year. While the U.S. has sold Iraq military equipment, the Obama administration has resisted drone strikes.
Congressional Republicans have accused Obama of ignoring repeated warnings about the worsening conditions on the ground.
Hundreds of young Iraqi men are flocking to volunteer centres across Baghdad to join the fight against Islamic militants who advanced across the country's north this week.
They were responding to a call by Iraq's most revered Shiite cleric for Iraqis to defend their country against the Islamic State of Iraq and the Levant, which seized Iraq's second largest city Mosul and Saddam Hussein's home town of Tikrit in a lightning advance.
The call was made by a representative of the Iranian-born grand ayatollah Ali al-Sistani. His call, while resonating with Iraq's Shiite majority, could aggravate the Sunni-Shiite sectarian divide, which nearly tore the country apart in 2006 and 2007.
The fast-moving rebellion in the north, which also draws support from former Saddam-era figures and other disaffected Sunnis, has emerged as the biggest threat to Iraq's stability since the US withdrawal at the end of 2011.
It has pushed the nation closer to a precipice that could partition the country into Sunni, Shiite and Kurdish zones, as prime minister Nouri al-Maliki's Shiite-led government struggles to form a coherent response.
The assault also threatens to embroil Iraq more deeply in a wider regional conflict, already feeding off the chaos caused by the civil war in neighbouring Syria.
As well as Mosul and Tikrit, the militants entered the two towns in Diyala province - Jalula, 80 miles north east of Baghdad, and Sadiyah, 60 miles north of the Iraqi capital.
The Islamic State has vowed to march on Baghdad, but with its large Shiite population gearing up for confrontation, the capital would be a far more difficult target.
Shiite cleric Muqtada al-Sadr and the Asaib Ahl al-Haq Shiite militia have vowed to defend Shiite holy sites, raising the spectre of street clashes and sectarian killings.
Meanwhile, in the northern city of Kirkuk, Iraqi security forces melted away, leaving Kurdish fighters to seize full control of the regional oil hub and surrounding areas.
A spokesman for Kurdish forces, known as the peshmerga, said they moved in after Iraqi troops retreated, assuming control of the 'majority of the Kurdistan region' outside the semi-autonomous Kurdish Regional Government
The government has also announced it will lend £3million in aid to victims of the violence as the prospect of civil war dramatically increases.
Officials are considering their military options alongside the US, and have discussed air strikes and the potential deployment of the SAS on the ground.
Foreign Secretary William Hague, said Britain was considering its options and looking at ways to help, but ruled out direct involvement.
Opposition: Iraqi residents of the Dhuluiyah area in the Salaheddin province, just 90 kilometres (60 miles) north of the capital Baghdad, celebrate as they stand on a police vehicle after expelling militants who had set up checkpoints in the city
Last night citizens in Dhuluiyah, 50 miles north of Bagdhad, were pictured celebrating on top of cars as they forced militants out of the area.
But the situation is looking bleak across the country with ISIS seizing a number of northern cities in the last week.
While also ruling out direct intervention by troops, Mr Hague said Britain was 'looking urgently at other ways to help', according to The Daily Telegraph.
He proposed 'counter-terrorism expertise, which would mean advisers from British Special Forces such as the SAS and intelligence agencies.
Mr Hague, speaking in London alongside the US secretary of state, John Kerry, said Britain could advise the Iraqi security forces on how to counter ISIS advances.
The Foreign Secretary gave no details, but in Libya in 2011, SAS units advised rebels despite David Cameron’s vow that there would be no 'British boots on the ground'.
He has held talks with Turkish foreign minister Ahmet Davutoglu 'urgently to co-ordinate approaches to the instability in Iraq and links to Syria conflict', he said on Twitter.
International Development Secretary Justine Greening said the initial tranche of emergency cash would allow agencies to supply water, sanitation, medicine, hygiene kits and basic household items.
Thousands have fled the sweeping advance of fighters from the al Qaida-inspired Islamic State of Iraq and the Levant (Isis) who have taken control of large areas including second city Mosul.
The Department for International Development (DfID) sent in experts yesterday to assess the scale of the crisis and it has now activated the UK's Rapid Response Facility.
'Iraq is facing serious humanitarian need,' Ms Greening said.
'The UK contribution to the international relief response will include initial funding for clean water, medicine and sanitation, as well as support for the UNHCR (the United Nations refugee agency) to provide dedicated safety and welfare teams to protect vulnerable women."
The news came as Iran - a key ally of Nouri al-Maliki's Shia-dominated administration in Baghdad - indicated that it was ready to provide assistance.
Iranian president Hassan Rouhani said his country had 'no option but to confront terrorism' and was 'ready to provide assistance within international law' if requested.
Call to arms: They provided resistance as ISIS prepare to storm Baghdad in an offensive
Hundreds of young Iraqi men are said to be responding to a call from Iraq's top Shia cleric on Iraqis to do their "duty" to fight the insurgency amid reports of atrocities.UN high commissioner for human rights Navi Pillay issued a warning about reports of war crimes, including summary executions and extrajudicial killings.
US president Barack Obama said he would be considering a range of military options - said to include air strikes - over the coming days.
The UK and US insisted it was for Iraq to deal with the issue however, with Mr Obama saying it had to be a 'wake-up call' for Iraq's leaders.
Prime minister al-Maliki has been widely criticised for fuelling the sectarian divide in Iraq by openly favouring the majority Shia population at the expense of the Sunnis.
'We can't do it for them and in the absence of this type of political effort, short-term military action, including any assistance we might provide, won't succeed,' Mr Obama said.
'So this should be a wake-up call: Iraq's leaders have to demonstrate a willingness to make hard decisions and compromises in order to bring the country together.'
Two thirds of the aid money will be used by NGOs in the region to supply clean water and sanitation, essential medicine, women-friendly hygiene kits and basic household items, the DfID said.
The rest would help protect vulnerable girls and women by funding dedicated UN safety and welfare teams to refugee camps.
The US president ruled out the possibility of putting American troops on the ground in Iraq, but said he was considering a range of other options drawn up by the Pentagon.
Administration officials said those include strikes using drones or manned aircraft, as well as boosts in surveillance and intelligence gathering, including satellite coverage and other monitoring efforts.
The US, which routinely has an array of ships in the region, has the aircraft carrier USS George HW Bush and an accompanying Navy cruiser in the northern Arabian Sea, while two Navy destroyers from the Bush strike group have been operating in the Persian Gulf.
The ships carry Tomahawk missiles, which could reach Iraq, and the USS George HW Bush is carrying fighter jets that could also easily get to Iraq.
Still, the president appeared to leave himself a clear off-ramp by making military action contingent on a 'serious and sincere effort by Iraq's leaders to set aside sectarian differences" between the nation's Sunnis and Shias.
'We can't do it for them,' he said. 'And in the absence of this type of political effort, short-term military action, including any assistance we might provide, won't succeed.'
US intelligence agencies assess that Baghdad is unlikely to fall.. Iraq's Shia soldiers who deserted en masse because they were unwilling to fight and die for Sunni towns such as Tikrit are much more likely to fight for Baghdad and its Shia-dominated national government, US intelligence officials believe.
Preparation: Iraqi policemen bodycheck men during a patrol at a railway station in the Baghdad on June 14, 2014 as security forces ready a counter-offensive against militants north of the capital
US agencies also assess that the units around Baghdad are marginally better.Officials said they estimate there are several thousand insurgents, but well short of 10,000.
The security situation in Iraq rapidly deteriorated this week as the al-Qaida-inspired group Islamic State of Iraq and the Levant quickly overran Iraq's second-largest city of Mosul, Saddam Hussein's hometown of Tikrit and smaller communities, as well as military and police bases - often meeting little resistance from state security forces.
The militants have vowed to press on to Baghdad.
The rebellion has emerged as the biggest threat to Iraq's stability since the US withdrew its military in late 2011 after more than eight years of war. Mr Obama said the militants also pose a threat to US national security interests, which could ultimately be used as a justification for a unilateral American strike.
Over the past several days, the United States has urged Prime Minister Nouri al-Maliki to make his government more inclusive and avoid further alienating Iraqi Sunnis who are eyeing the insurgency as an alternative to supporting the Shia leadership in Baghdad.
That message was delivered to al-Maliki in a phone call from Vice President Joe Biden and also personally by Deputy Assistant Secretary of State Brett McGurk, who has years-long ties to the prime minister and is in Iraq this week to help negotiate a solution.
The presence is a result of a major offensive, spearheaded by powerful jihadist group the Islamic State of Iraq and the Levant (ISIL) but also involving supporters of now-executed dictator Saddam Hussein
Mr Obama suggested it could take several days to gather the intelligence necessary to make a final decision on the US response to the situation. Following his statement, Mr Obama departed on a four-day trip to North Dakota and California. Officials said he had no plans to cut it short.
For the president, launching military strikes in Iraq would pull the US back into a conflict he declared over more than two years ago. The president has since tried to keep the US out of further conflicts, including in Syria, where a civil war is helping fuel the insurgency in neighbouring Iraq.
Secretary of State John Kerry, travelling in London, said a key difference between striking Syria and taking action in Iraq was the fact that Baghdad was specifically asking Washington for help.
'Under international law, it is clear that when a legitimate nation makes a request for help there is a legal basis for involvement in ways that are different,' Mr Kerry said.
Iraqi leaders have been pleading with the US for additional help to combat the insurgency for more than a year. While the U.S. has sold Iraq military equipment, the Obama administration has resisted drone strikes.
Smashed: An Iraqi SWAT team member walks past a broken window inside a train carriage during the operation
Congressional Republicans have accused Obama of ignoring repeated warnings about the worsening conditions on the ground.
Hundreds of young Iraqi men are flocking to volunteer centres across Baghdad to join the fight against Islamic militants who advanced across the country's north this week.
They were responding to a call by Iraq's most revered Shiite cleric for Iraqis to defend their country against the Islamic State of Iraq and the Levant, which seized Iraq's second largest city Mosul and Saddam Hussein's home town of Tikrit in a lightning advance.
The call was made by a representative of the Iranian-born grand ayatollah Ali al-Sistani. His call, while resonating with Iraq's Shiite majority, could aggravate the Sunni-Shiite sectarian divide, which nearly tore the country apart in 2006 and 2007.
The fast-moving rebellion in the north, which also draws support from former Saddam-era figures and other disaffected Sunnis, has emerged as the biggest threat to Iraq's stability since the US withdrawal at the end of 2011.
It has pushed the nation closer to a precipice that could partition the country into Sunni, Shiite and Kurdish zones, as prime minister Nouri al-Maliki's Shiite-led government struggles to form a coherent response.
Diplomacy: Iranian President Hassan Rouhani, pictured at a press conference today, is considering cooperating with the United States in fighting Sunni extremist fighters in Iraq
The assault also threatens to embroil Iraq more deeply in a wider regional conflict, already feeding off the chaos caused by the civil war in neighbouring Syria.
As well as Mosul and Tikrit, the militants entered the two towns in Diyala province - Jalula, 80 miles north east of Baghdad, and Sadiyah, 60 miles north of the Iraqi capital.
The Islamic State has vowed to march on Baghdad, but with its large Shiite population gearing up for confrontation, the capital would be a far more difficult target.
Shiite cleric Muqtada al-Sadr and the Asaib Ahl al-Haq Shiite militia have vowed to defend Shiite holy sites, raising the spectre of street clashes and sectarian killings.
Meanwhile, in the northern city of Kirkuk, Iraqi security forces melted away, leaving Kurdish fighters to seize full control of the regional oil hub and surrounding areas.
A spokesman for Kurdish forces, known as the peshmerga, said they moved in after Iraqi troops retreated, assuming control of the 'majority of the Kurdistan region' outside the semi-autonomous Kurdish Regional Government
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