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The president, in remarks carried live over network television, said he has begun operations to assist Iraqis stranded on a mountain to escape the advancing forces of the Islamist State, which have swept across northern Iraq in recent weeks.
"When we face a situation like we do on that mountain, with innocent people facing the prospect of violence on a horrific scale, when we have a mandate to help in this case a request from the Iraqi government, and when we have the unique capabilities to help avert a massacre, then I believe the United States of America cannot turn a blind eye," Obama said.
"We can act carefully and responsibly to prevent a potential act of genocide," he said.
Obama said he had authorized the US military to take targeted strikes against militants if they advanced toward the Kurdish capital of Arbil or threatened Americans anywhere in the country.
"We intend to stay vigilant and take action if these terrorist forces threaten our personnel or facilities anywhere in Iraq, including our consulate in Arbil and our embassy in Baghdad." he said.
The Islamic State's Sunni militants, an offshoot of al Qaeda, have come within a 30 minute drive of Arbil and inflicted a humiliating defeat on Kurdish forces over the weekend, prompting tens of thousands from the ancient Yazidi community to flee the town of Sinjar for surrounding mountains.
Any air strikes would represent the first combat action by the United States in Iraq since it ended eight years of war in 2011. Earlier this year the United States sent a small number of military advisers to help the Iraqi government address the threat of the Islamic militant offensive.
Near the White House earlier in the day, some 80 people protested for hours on behalf of the Yazidis, shaking US flags, chanting slogans and holding up signs condemning what they called a holocaust of Christian communities in Iraq and Syria by the Islamic State.
Obama said any US operations would be limited, and pledged not to allow the United States to be dragged into another war in Iraq.
"Even as we support Iraqis as they take the fight to these terrorists, American combat troops will not be returning to fight in Iraq," he said. "The only lasting solution is reconciliation among Iraqi communities and stronger Iraqi security forces."
The Defense Department said it had dropped 72 bundles of food and water to the Iraqis fleeing the militants.
The Islamist fighters, who have killed many thousands and declared a caliphate in the Iraqi area they conquered, are now threatening Kurdistan, a region previously considered a bastion of stability in a country ravaged by conflict.