World Bulletin/News Desk

Iraq's most senior Shi'ite cleric urged his followers to take up arms to defend themselves against a relentless advance by Sunni militants, in a sharp escalation of a conflict which is threatening civil war and the potential break-up of the country.

In a rare intervention at Friday prayers in the holy city of Kerbala, a message from Grand Ayatollah Ali al-Sistani, who is the highest religious authority for the Shi'ites in Iraq, said people should unite to fight back against advancing militants from the Islamic State of Iraq and the Levant.

Fighters under the black flag of ISIL captured two more Iraqi towns overnight in a lightning sweep south towards the capital Baghdad in a campaign to recreate a mediaeval caliphate carved out of fragmenting Iraq and Syria.

"People who are capable of carrying arms and fighting the terrorists in defence of their country ... should volunteer to join the security forces to achieve this sacred goal," said Sheikh Abdulmehdi al-Karbalai, delivering Sistani's message to the faithful.

Those killed fighting ISIL militants would be martyrs, he said as worshippers chanted in acknowledgement.

U.S. President Barack Obama threatened military strikes against ISIL on Thursday, highlighting the gravity of the group's threat to redraw borders in an oil-rich region.

In the spreading chaos, Iraqi Kurdish forces have seized control of Kirkuk, an oil hub just outside their autonomous enclave that they have long seen as their traditional capital.

Thrusting further to the southeast after their seizure of the major Iraqi city of Mosul in the far north and the late dictator Saddam Hussein's hometown of Tikrit, ISIL entered two towns in Diyala province bordering Iran.

Saadiyah and Jalawla had fallen to the Sunni Muslim insurgents after government troops fled their positions, along with several villages around the Himreen mountains that have long been a hideout for militants, security sources said.

The Iraqi army fired artillery shells at Saadiyah and Jalawla from the nearby town of Muqdadiya, sending dozens of families fleeing towards Khaniqin near the Iranian border.

Obama said on Thursday he was considering "all options" to support Iraq's Shi'ite Muslim-dominated central government that took full control when the U.S. occupation ended in 2011, eight years after the invasion that toppled Saddam.

U.S. officials later said that U.S. ground forces would not return to Iraq.

INTERNATIONAL ALARM

But Obama said military action alone was no panacea against ISIL. He alluded to long-standing Western complaints that Shi'ite Prime Minister Nuri al-Maliki has done little to heal sectarian rifts that have left many of Iraq's minority Sunnis, cut out of power since Saddam's demise, aggrieved and keen for revenge.

"This should be also a wake-up call for the Iraqi government. There has to be a political component to this," Obama said.

U.S. Vice President Joe Biden assured Maliki by telephone that Washington was prepared to intensify and accelerate its security support. The White House had signalled on Wednesday it was looking to strengthen Iraqi forces rather than meet what one U.S. official said were past Iraqi requests for air strikes.

French Foreign Minister Laurent Fabius said international powers "must deal with the situation".

In Mosul, ISIL staged a parade of American Humvee patrol vehicles seized from a collapsing Iraqi army in the two days since its fighters drove out of the desert and overran the city.

ISIL militants were reported to have executed soldiers and policemen after their seizure of some towns.

On Friday, ISIL said it was giving soldiers and policemen a "chance to repent ... For those asking who we are, we are the soldiers of Islam and have shouldered the responsibility to restore the glory of the Islamic Caliphate".

Residents near the border with Syria, where ISIL has exploited civil war to seize wide tracts of the country's northeast, saw its militants bull-dozing tracks through frontier sand berms - as a prelude to trying to revive a mediaeval entity straddling both modern states.

ISIL has battled rival rebel factions in Syria for months and occasionally taken on President Bashar al-Assad's forces.

But its fighters appear to have held back in Syria this week, especially in their eastern stronghold near the Iraqi border, while their Iraqi wing was making rapid military gains.

TARGET BAGHDAD

ISIL's Syria branch is now bringing in weapons seized in Iraq from retreating government forces, according to Rami Abdulrahman, head of the Syrian Observatory for Human Rights monitoring group.

At Baiji, near Kirkuk, ISIL fighters ringed Iraq's largest refinery, underlining the potential threat to the oil industry.

Further south, the fighters extended their advance to towns only about an hour's drive from Baghdad, where Shi'ite militia were mobilising for a potential replay of the ethnic and sectarian bloodbath of 2006 and 2007.

Trucks carrying Shi'ite volunteers in uniform rumbled towards the front lines to defend Baghdad.

Security and police sources said Sunni militants now held parts of the town of Udhaim, 90 km (55 miles) north of Baghdad. "We are waiting for reinforcements and we are determined not to let them take control," said a police officer in Udhaim.

"We are afraid that terrorists are seeking to cut the main highway that links Baghdad to the north."

ISIL and its allies took control of Falluja at the start of the year. It lies just 50 km (30 miles) west of Maliki's office.

ISIL has set up military councils to run the towns they captured, residents said. "'Our final destination will be Baghdad, the decisive battle will be there' - that's what their leader kept repeating," said a regional tribal figure.

The senior U.N. official in Iraq assured the Security Council that Baghdad was in "no immediate danger". The council offered unanimous support to the government and condemned "terrorism".