PRESIDENT Barack Obama said the US was prepared to take targeted military action if necessary against advancing Islamists in Iraq.
But he stressed "American forces will not be returning to combat in Iraq".
He said the US would send up to 300 military advisers to support Iraqi forces confronting an al Qaeda splinter group attacking the country.
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But he insisted there was "no military solution" and said the crisis needed a political remedy.
The president, speaking at a news conference after meeting with his national security team, said: "American combat troops are not going to be fighting in Iraq again.
"We do not have the ability to simply solve this problem by sending in tens of thousands of troops and committing the kinds of blood and treasure that has already been expended in Iraq.
"Ultimately, this is something that is going to have to be solved by the Iraqis."
Iraq's government had asked the US for air strikes against the militants, who are led by the jihadist Islamic State of Iraq and the Levant (Isis) and have made major territorial gains in the past 10 days.
The president said the military advisers would support Iraqi security forces and create joint operation centres in Baghdad and northern Iraq to share intelligence and coordinate planning to confront the insurgents.
US officials have said the advisers would be special forces troops operating in 12-member teams in non-combat roles.
US defence secretary Chuck Hagel said the commandos would assess the situation on the ground and evaluate gaps in the Iraqi security forces.
The president said US military forces had increased their intelligence gathering over Iraq in recent days and would consider military strikes if necessary.
"We will be prepared to take targeted and precise military action," he said, adding that he would consult with the US Congress and leaders in the region before taking action.
He said secretary of state John Kerry would go to the Middle East and Europe this weekend to lead diplomatic efforts to promote stability in the region.
He said it was not the US's place to choose Iraq's leaders, but urged them to pursue an "inclusive agenda".
The crisis continued in Iraq yesterday as Isis militants fought Iraqi troops in an intense battle at the Baiji oil refinery. The facility, the country's largest, is between the cities of Mosul and Tikrit, both seized by Isis last week.
Mr Obama has said the Iraqi government must take steps to heal the political rifts among Sunnis, Shi'ites and Kurds before he will agree to any military action against the insurgency led by Isis, an al Qaeda splinter group.
US officials have criticised Iraqi prime minister Nouri al-Maliki's performance, saying his actions have intensified the country's sectarian divisions.
Earlier yesterday, a spokesman for Mr Maliki said he will not stand down as a condition of US air strikes against Sunni militants, despite the growing chorus in Washington that wants to dump the former US choice for prime minister. "It is not our job to choose Iraq's leaders," Mr Obama repeated, when asked if Mr Maliki should step aside.