Tony Abbott says his government will carefully consider the risks and objectives before agreeing to take part in further military action in Iraq.
The prime minister has outlined to parliament how Australia would respond if Iraq asks for military help.
"No human being anywhere would wish to stand by and watch the preventable slaughter of innocent people," he told parliament on Thursday.
"That is the Australian way: to keep our country safe and to do what we can to build a safer world."
The United States has launched air strikes against the Islamic State, also known as ISIL. But to date Australia has only given humanitarian assistance.
"Australia has not been officially asked for military assistance," Mr Abbott said.
"Should we be asked, we would want to look at any request in the light of achievable objectives, a clear role for Australian forces, a full risk assessment and an overall humanitarian objective."
Any decision to send troops would be made in consultation with cabinet and the opposition, he said.
The US is continuing to discuss the matter with its allies.
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