Prime Minister Tony Abbott is considering what further action Australia can take against Islamist extremists in Iraq.
The Islamic State, also known as ISIL or ISIS, overnight released a video of the beheading of a second American journalist and has threatened to kill a British hostage.
The killer blames US air strikes, which are being carried out in support of the humanitarian mission involving Australian and other forces.
Mr Abbott said he had no doubt the atrocity was carried out by ISIL, as the movement not only conducted evil acts but "is proud of evil".
US President Barack Obama, who will attend a NATO summit in Wales this week, said in a statement he would be consulting with allies "regarding additional actions to take against ISIL and to develop a broad-based international coalition to implement a comprehensive strategy to protect our people and to support our partners in the fight against ISIL".
Mr Abbott says further action in Iraq to protect people from ISIL was "abundantly justified".
"We have received no specific request to engage in actual military action against ISIL," he said.
"Nevertheless we have received a general request and we are considering what we may be able to make available."
Australian aircraft have delivered humanitarian air drops to the besieged people on Mount Sinjar and Amerli and overnight airlifted military equipment to Kurdish forces in Erbil.
Foreign Minister Julie Bishop will be discussing Iraq at the NATO summit, at which Australia will be granted "enhanced partner" status.
"There will be a discussion at NATO, on the margins or during the summit, about the contribution the international community can make in response to the brutality of ISIS," she said before heading overseas.
Opposition Leader Bill Shorten called the murder of the two journalists "medieval".
"It is not because of western involvement, as these Islamic fundamentalist terrorists would have you believe - it is because they follow a wicked ideology of extremism," Mr Shorten said.
Opposition foreign affairs spokeswoman Tanya Plibersek said the work of journalists was vital to relay the atrocities and suffering in conflict zones.
Treasurer Joe Hockey said Australia was determined to do what is right by humanity.
"We will never be intimidated as a nation or a people by the threats of murderers," he said.
Defence officials said the RAAF C-17A Globemaster aircraft had successful taken weapons from Albania into Iraq to arm the Kurds.
No shots were fired at the aircraft and the mission was carried out without incident.
Chief of Joint Operations, Vice Admiral David Johnston, said further aid, stores and support flights may be planned to assist the people of northern Iraq.
The US has around 820 troops on diplomatic security duties in Baghdad and has conducted more than 120 airstrikes on four target areas in Iraq.
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