Prime Minister Tony Abbott says a truce between terror groups Islamic State and al-Qaeda would be tragic for Iraq, and disastrous for the rest of the world.
Iraqi terror expert Hisham al-Hashimi has predicted the allied attacks on IS in Iraq and Syria will reunite the two organisations that split in February this year.
Mr Abbott described the Middle East as a witches brew of danger, difficulty and complexity - and again stated the importance of Australian's air and special forces mission to Iraq.
"Anything that gives this death cult extra strength is obviously tragic for the people of Iraq and disastrous for the people of the region and the wider world," he told reporters in Brisbane.
"That's why it's important that we and our allies do everything we can to disrupt and degrade this appalling movement, and that's what we're doing."
Meanwhile, Treasurer Joe Hockey repeated his call for Labor to back the budget in order to pay for Australia's involvement in Iraq and beefing up national security.
The opposition has branded Mr Hockey desperate for trying to link the unpopular budget to the conflict against IS.
While the treasurer welcomed Labor leader Bill Shorten's support on Iraq, he said Australia had to pay for the national security measures.
"We don't want to have to increase taxes to pay for our national security commitments which now exceed an additional $1.1 billion, but the problem that we face is that Labor is blocking $28 billion of savings in the budget," he told ABC Television.
Mr Abbott said he appreciated Labor's bipartisanship on national security, but stopped short of demanding its support for the budget.
"Now I'd like more bipartisanship on questions of economic security," he said.
"But ... I appreciate we don't have the same tradition of bipartisanship on economic issues that we've mostly had on national security issues."