Video posted online purported to show militants at a former US base in Tikrit
Iraq's most senior Shia cleric has issued a call to arms while Sunni-led insurgents seize more towns.
The call by a representative of Grand Ayatollah Ali al-Sistani came during Friday prayers, as the militants widened their grip in the north and east, and threatened to march south.
The UN says hundreds have been killed - with militants carrying out summary executions of civilians in Mosul.
Both the US and Iran have promised to help the fight against the insurgency.
Led by the Islamic State in Iraq and the Levant (ISIS), the Sunni insurgents have threatened to push to the capital, Baghdad, and regions further south dominated by Iraq's Shia Muslim majority, whom they regard as "infidels".
Fear is the thing that you feel the most as you walk through Baghdad's streets, as the militants come closer. People here are buying supplies and staying in front of their television sets. They remember what happened during the civil war of 2006-2008 and are very scared this will happen again.
Many Iraqis no longer trust their national army after soldiers retreated from the ISIS advance. Some have even called for people to instead join militias to defend cities and holy sites.
It's certainly not the same Baghdad it has been in the last few years.
John Kerry: "Iraq is facing a brutal enemy"
In his sermon at Friday prayers in Karbala, Sheik Abdulmehdi al-Karbalai said: "Citizens who are able to bear arms and fight terrorists, defending their country and their people and their holy places, should volunteer and join the security forces to achieve this holy purpose."
There are reports that thousands have already joined Shia militias which could play a crucial role in the defence of Baghdad, says the BBC's Richard Galpin there.
As the militants moved on to Diyala province on the border with Iran later on Friday, they clashed with Shia militias in Udhaim, about 90km (60 miles) north of Baghdad and in Muqdadiya, 80km north-east of the capital, Reuters news agency says.
President Hassan Rouhani of Iran called Iraqi Prime Minister Nouri Maliki on Thursday and promised that Shia-majority Iran would "not allow the supporters of terrorists to disrupt security and stability of Iraq through exporting terrorism to Iraq".
According to the Wall Street Journal - which cited unnamed sources - Iran has already deployed two battalions of the elite al-Quds forces of its Revolutionary Guard to help the Iraqi government.
Volunteers have been gathering in numbers to join the fight against the Sunni-led militants
In the town of Taji, near Baghdad, Iraqi policemen have begun digging trenches
Militants in Mosul have been celebrating their easy victory, as the army withdrew
A clean-up has begun in Mosul - now under militant control
The BBC's Paul Wood met refugees at a transit camp in Irbil
US President Barack Obama said he did not "rule out anything because we do have a stake in making sure these jihadists are not getting a permanent foothold in Iraq, or Syria for that matter".
At a news conference in London, US Secretary of State John Kerry said Iraq was facing a "brutal enemy" that also posed a threat to US interests.
He also said Mr Maliki needed to do more to resolve political differences fuelled by sectarian differences.
Analysis: Jeremy Bowen, BBC Middle East editor
The success of ISIS can only make the turmoil in the Middle East worse. ISIS is an ultra-extremist Sunni Muslim group. Its success will deepen the sectarian conflict between Sunnis and Shias that is already the most dangerous fault line in the Middle East.
Iran, which is a majority Shia Muslim country, shares a border with Iraq. It has a direct line to Iraq's Shia Muslim Prime Minister, Nouri Maliki, and close links with some Iraqi Shia militias. The Iranians could direct their proxies, and even their own special forces units, at ISIS.
That might end up further inflaming the anger of Iraqi Sunnis, who have already helped the advance of ISIS through Iraq.
US air strikes, if they happen, might do the same thing. Once again in the Middle East, the Americans have limited options. Their invasion and occupation of Iraq in 2003 helped create and strengthen jihadist groups.
Rape and murder
UN human rights spokesman Rupert Colville said on Friday that his office had verified reports that included the killing of 17 civilians working for the police and 12 Iraqi soldiers.
He said there had been government "excesses", too, and cited the shelling of civilian areas on 6 and 8 June.
The United Nations refugee agency, UNHCR, says local authorities estimate that up to 300,000 people fled Mosul in the past few days - joining the more than 500,000 displaced by the conflict in Anbar province earlier.
However, the number of those arriving has slowed down and some already there have begun to return.
ISIS in Iraq
- The Islamic State in Iraq and the Levant (ISIS) has 3,000 to 5,000 fighters, and grew out of an al-Qaeda-linked organisation in Iraq
- Joined in its offensives by other Sunni militant groups, including Saddam-era officers and soldiers, and sympathetic Sunni tribal fighters
- ISIS has exploited the standoff between the Iraqi government and the minority Sunni Arab community, which complains that Shia Prime Minister Nouri Maliki is monopolising power
- The organisation is led by Abu Bakr al-Baghdadi, an obscure figure regarded as a battlefield commander and tactician
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