In a televised address late last night, Obama said the US "cannot turn a blind eye" when it has the capability to prevent genocide of the stranded Iraqi minorities.
He also authorised a humanitarian effort to "help save thousands of Iraqi civilians who are trapped on a mountain without food and water and facing almost certain death".
Obama said he has authorised US military to conduct air strikes against Islamic State militants if they advance further toward the city of Erbil - the capital of Kurdish region of Iraq "where American diplomats and civilians serve at our consulate and American military personnel advise Iraqi forces".
"We can act, carefully and responsibly, to prevent a potential act of genocide. That's what we're doing on that mountain," he said.
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In a nine-minute speech, Obama explained the reasons for his decision, but reiterated there would be no American troops on the ground.
"Earlier this week, one Iraqi in the area cried to the world, "There is no one coming to help." Well, today, America is coming to help," he said in his remarks from the State Dining room of the White House, adding that when the lives of Americans are at risk and when thousands of innocent civilians at risk, the US will take action.
Throngs of refugees, many of them Iraqi Christians, are also on the run after their largest city Qaraqosh was occupied by the militants from the al-Qaeda splinter group.
At the same time, Obama vowed that the US would not be dragged into another war in Iraq.
Defence Secretary Chuck Hagel said the US military is ready to carry out air strikes inside Iraq.