Australia will send 600 soldiers and several aircraft to the UAE, as part of the US-led international coalition formed to fight Islamic State (IS) militants.
Approximately 400 will be drawn from the Royal Australian Air Force (RAAF), while the remaining 200 soldiers will be from the Australian Army, primarily the Special Air Services (SAS).
The country will also deploy aircraft, including eight F/A18 combat aircraft, an E-7A Wedgetail airborne early warning and control aircraft, and a KC-30A multirole tanker and transport aircraft, to a US military base in the UAE.
The decision follows a formal request from the US.
Australian Prime Minister Tony Abbott said in a statement: "In addition, the Australian Defence Force will prepare a Special Operations Task Group as military advisers that could assist Iraqi and other security forces that are taking the fight to the ISIL terrorists.
"We are not deploying combat troops but contributing to international efforts to prevent the humanitarian crisis from deepening.
"The conflict has reached out to Australia, with at least 60 Australians fighting with ISIL and other terrorist groups and another 100 or so supporting these extremists."
While a decision to send Australian forces into combat is reportedly yet to be taken, Abbott added that the mission would last for several months. He clarified that the country does not intend to operate in Syria.
The Australian C-130J Hercules and C-17A Globemaster aircraft have already made two humanitarian aid drops in northern Iraq in recent weeks, and delivered arms and munitions to Iraqi and Kurdish forces fighting IS militants.
The Australian announcement comes a day after IS beheaded a British aid worker, David Haines, in retaliation to the UK's support for Iraqi and Kurdish forces.
Captured in Syria in March 2013, Haines is the third hostage to be executed by terrorists since August, following the deaths of US journalists James Foley and Steven Sotloff.
Last week, US President Barack Obama announced a strategy to build an international collation to defeat IS militants in Iraq and Syria. Nearly 40 countries, including ten Arab states, have already agreed to join.
Meanwhile, the US state secretary John Kerry is scheduled to meet global foreign ministers in Paris, France, to devise a strategy to defeat the militant group, which has captured several cities in northern Iraq and displaced several thousands of civilians since June.