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Prime Minister Tony Abbott has not ruled out potential Australian military action in Iraq describing the situation there as ''disastrous''.
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Obama says 'Aussies know how to fight'
The President has praised Australia's military capability, highlighting the close ties between the Australia and the US.
Speaking after a meeting with US President Barack Obama in Washington on Thursday morning, Mr Abbott said Australia ''would do what we reasonably can to protect Australian citizens, Australian interests and Australian values''.
Mr Obama also said that he would "not rule anything out" in an American response to the extremist takeover of key Iraqi cities.
Asked what would provoke a US military response, Mr Obama reiterated points he made in a recent foreign policy speech at the West Point military academy, that America would strike unilaterally if its national security was threatened, but would otherwise seek to build coalitions.
He said Australia was one of a handful of nations America knew it could always count on, not just because of shared values, but because of military capability.
''Aussies know how to fight, and I like having them in a foxhole if we're in trouble,'' Mr Obama said.
Mr Abbott's comments in the US appear to be at odds with Defence Minister David Johnston who said on Thursday that there were ''no plans'' to provide military help to Baghdad in its battle against an al-Qaeda splinter group that has cut a swathe through northern Iraq.
''Without ruling anything in, obviously, this is a very concerning situation and it does need to be taken seriously and dealt with appropriately,'' Mr Abbott told Sky News.
When pressed that he did not rule out Australian military action, Mr Abbott said he did not, but added: ''I hope it doesn't come to that''.
He said that to have ''such large chunks'' of Iraq in the hands of an ''al-Qaeda-type'' group was a humanitarian disaster and potentially a security disaster, following on from the crisis in Syria, which Mr Abbott described as ''diabolically complex''.
''It seems like the situation in other parts of the Middle East is now becoming a witches brew of difficulty,'' he said.
Labor leader Bill Shorten said he would be asking the government for a briefing on the Iraq situation.
When asked if he would support Australian military action in the country, he said: "We need to consider this, and I think it's as hypothetical at this stage, because I don't think a formal request has been made."
Mr Shorten said that Australia needed to weigh up whether the use of Australian soldiers was in the national interest. "That is the test Labor would apply."
The government of Prime Minister Nouri al-Maliki, facing its direst hour since the withdrawal of Coalition forces in 2011, has reportedly asked the US to carry out drone strikes against the militant group that has overrun the country's second largest city, Mosul.
It is unclear whether Baghdad is also seeking help from other countries such as Australia that took part in the 2003 overthrow of dictator Saddam Hussein.
Ms Bishop said she was ''deeply concerned'' by the ferocious assault carried out by fighters from the Islamic State of Iraq and the Levant, a group that has roots in al-Qaeda but which has been disavowed by the leadership because of its ultra-violent methods.
A spokesman for Senator Johnston later said the government had no plans to give any military or material assistance to Baghdad.
The militant group took control of western portions of Iraq in January, but the latest advance is particularly troubling because the Iraqi forces folded so quickly, with up to 30,000 troops reportedly retreating in the face of just 800 ISIL fighters.
''There's no fight in them and that is a major concern for the Iraqi government,'' said former Chief of Army Peter Leahy, now director of the National Security Institute at the University of Canberra.
This was especially so as the troops were largely well-trained and well-equipped by the US, he added.
Lowy Institute fellow and former Army officer Rodger Shanahan agreed that Australia had a moral obligation to help but added that in practice the US was in the best position to offer military assistance. He said ISIL had scored a major victory that would likely yield them more recruits.
''They've now announced themselves as a very strong militia,'' he said.
The Maliki government needed to regather its military forces and hit back swiftly to restore confidence, he said.
President Obama is facing criticism that militants from Islamic State in Iraq and Syria were emboldened by his decision not to intervene in the Syrian civil war and reports that he has refused Iraq requests for airstrikes against the militants.
He said the situation demanded an immediate response and that his national security staff was considering all options short of sending US troops.
''My team is working around the clock to identify how we can provide the most effective assistance to them. I don't rule out anything, because we do have a stake in making sure that these jihadists are not getting a permanent foothold in either Iraq or Syria, for that matter,'' he said.
It is understood the administration is now considering air strikes but has ruled out sending US troops.
Before President Obama appeared with Mr Abbott, the Republican Speaker of the House, John Boehner, told reporters, ''It's not like we haven't seen this problem coming for over a year. They're 100 miles from Baghdad, and what's the President doing? Taking a nap.''
He said the President should not have celebrated America's withdrawal from Iraq, but focused on ''completing our mission successfully''.