Australian defence officials say building closer ties with Iran will help in the fight against Islamic State extremists.
Foreign Minister Julie Bishop is planning a trip to Iran in coming weeks.
Iranian-based Shia militia are fighting alongside Iraqi soldiers to defeat IS and seize back cities such as Tikrit.
But there have been reports of tensions between the Shia militias and the US-led coalition forces, as well as troubled relations between Shia and Sunni.
Australia's chief of joint operations in Iraq, Vice Admiral David Johnston, said that while Defence did not have a direct relationship with the Iranians, the links being built by Ms Bishop and the government would provide "an important means of dialogue".
But he said building better co-operation between Shia and Sunni in Iraq was ultimately the responsibility of the Iraqi government.
"It is vital the government of Iraq brings that together," he said.
While there had been reports of some incidents between Sunni and Shia "collectively it appears relatively positive so far", Vice Admiral Johnston said.
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