Obama signed off on White House action after meeting his top national security advisors to discuss how to respond to swift gains by the al-Qaeda offshoot Islamic State of Iraq and the Levant (ISIL) insurgents who have seized several key cities and threaten to advance on Baghdad.
The militants have grabbed northern Iraq's biggest city, Mosul, displaced hundreds of thousands of people, left an unknown number dead and alarmed Western nations who fear the establishment of a vast new "terror" haven.
Obama was adamant, however, that "American forces will not be returning to combat in Iraq."
"But we will help Iraqis as they take the fight to terrorists who threaten the Iraqi people, the region and American interests as well," he said.
Obama said he had already bolstered surveillance and intelligence capabilities in the country as he weighs possible military operations in the US national interest.
"Going forward, we will be prepared to take targeted and precise military action if and when we determine that the situation on the ground requires it," said Obama.
Washington has already positioned an aircraft carrier in the Persian Gulf and is also considering using drone strikes against ISIL militants.
Senior US officials privately said that special forces being sent to advise Iraqi forces could also be used to call in air strikes if necessary.
A senior US official said the US advisors would operate in small teams of about a dozen special operators embedded at "upper headquarters" level in the Iraqi forces, and perhaps later at brigade level.
The deployments would happen "very soon," the official said.
Military officials also confirmed that US forces were already flying F-18 and unmanned surveillance flights over Iraq.
The president said he was prepared to send up to 300 military advisors to Iraq -- in addition to 175 troops currently protecting the US embassy and 100 more on standby -- to assess how to train, advise and support Iraqi forces.
Obama also announced a new diplomatic initiative, sending Secretary of State John Kerry to Europe and the Middle East this weekend to consult on next steps with US allies and Iraq's neighbors.
Congressional sources said Kerry would travel to Iraq "soon."
Oil prices soared to a new nine-month high because of the violence in Iraq, and the attack on the refinery.
Britain banned ISIL, adding it to a list of proscribed organizations along with four other groups linked to the Syrian conflict, as fears grow the radicals could pose a direct threat to European security.
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