America is deploying up to 275 troops to Iraq to protect the US embassy and other interests and is considering sending special forces soldiers as the country struggles to repel a rampant uprising.
But the White House insisted that the US would not be sending combat troops and thrusting America into a new Iraq war.
In a formal report to the US Congress last night, President Barack Obama said the troops being deployed would be equipped for combat and would remain in Iraq until the security situation improved.
About 160 troops are already in Iraq, including 50 US Marines and more than 100 soldiers, some of whom have only recently arrived.
Under the authorisation outlined by Mr Obama, a US official said an additional 100 soldiers would be placed in a nearby third country where they would be held in reserve until needed.
Separately, US officials emphasised that a possible limited special forces mission - which has not yet been approved - would focus on training and advising beleaguered Iraqi troops, many of whom have fled their posts across the nation's north and west as the al Qaida-inspired insurgency has advanced in the worst threat to the country since American troops left in 2011.
But the plan suggests a willingness by Mr Obama to send Americans into a collapsing security situation, though explicitly ruling out putting troops into direct combat in Iraq, and how far he might be willing to go to quell the brutal fighting in Iraq before it turns into outright war.
Meanwhile, it emerged that American and Iranian diplomats discussed developments in Iraq on the sidelines of nuclear talks in Austria.
The brief encounter took place in Vienna and is expected to set the stage for additional contacts between the US and Iran on how Sunni extremists threaten Iraq, the government in Baghdad and all countries in the region.
An official said the talks would not include military discussions but rather focus on the "need to support inclusivity in Iraq and refrain from pressing a sectarian agenda".
Yesterday secretary of state John Kerry said the US was willing to talk to Iran over ways the two long-time foes might help stop the insurgents known as the Islamic State of Iraq and the Levant (Isis).
It was Washington's first explicit overture to the Islamic Republic to jointly work on threats that confront Iraq, although U.S. officials quickly tamped down speculation that the discussion might include military coordination or consultation.
In an interview with Yahoo! News, Mr Kerry said the US would "not rule out anything that would be constructive" but stressed that any contacts with Iran would move "step-by-step".
The White House says the US troops are entering Iraq with the consent of that country's government.
Last Friday Mr Obama declared that "we will not be sending US troops back into combat in Iraq", but said the White House was considering other options to support Iraqi security forces.
Three officials familiar with yesterday's discussions said the potential of sending special forces to Iraq was high on a list of military options being considered.
It's not clear how quickly the special forces could arrive in Iraq and it is also unknown whether they would remain in Baghdad or be sent to the nation's north, where the Sunni Muslim insurgency has captured large swathes of territory collaring Baghdad, the capital of the Shiite-led government.
The mission would almost certainly be small, with one US official saying it could be up to 100 special forces soldiers. It also could be authorised only as an advising and training mission - meaning the soldiers would work closely with Iraqi forces fighting the insurgency, but would not officially be considered as combat troops.
The troops would fall under the authority of the US ambassador in Baghdad and would not be authorised to engage in combat, another official said. Their mission would be "non-operational training" of both regular and counter terrorism units, which the military has in the past interpreted to mean training on military bases.
But all US troops are allowed to defend themselves in Iraq if they are under attack. About 100 marines and soldiers have already been sent to Baghdad to help with embassy security, according to a US official.
Mr Obama made the end of the war in Iraq one of his signature campaign issues and has touted the US military withdrawal in December 2011 as one of his top foreign policy successes.
But he has been caught over the past week between Iraqi officials pleading for help - as well as Republicans blaming him for the loss of a decade's worth of gains in Iraq - and his anti-war Democratic political base, which is demanding that the US stay out of the fight.
While the White House continues to review its options, Iran's military leaders are starting to step into the beach.
The commander of Iran's elite Quds Force, General Ghasem Soleimani, was in Iraq yesterday and consulting with the government on how to stave off insurgents' gains.
Iraqi security officials said the US government was notified in advance of the visit by Gen Soleimani, whose forces are a secretive branch of Iran's Revolutionary Guard that in the past has organised Shiite militias to target US troops in Iraq and, more recently, was involved in helping Syria's President Bashar Assad in his fight against Sunni rebels.