It would be a “long-term project” to revamp and resupply the military and build support among Sunnis, he said.
Barack Obama stressed that progress would depend on Iraqis coming together and forming an inclusive government.
The Islamic State (IS), formerly known as Isis, has seized swathes of northern and western Iraq in recent months.
Barack Obama said air strikes on Friday – the first time US forces have been directly involved in a military operation in Iraq since they withdrew from the country in late 2011 – had destroyed IS arms and equipment.
They had also prevented attacks by the al-Qaeda breakaway on thousands of members of the Yazidi religious minority group stranded on a mountain in the north-west, the president added.
The Yazidis fled to Mount Sinjar a week ago after IS fighters overran a nearby town where many had been sheltering over the past two months.
Earlier, the UK said it had sent a cargo plane to help with the relief operation that has seen US aircraft drop thousands of bottles of water and ration packs in the area over the past two days.
One C-17 and two C-130 transporters dropped 72 bundles of supplies, according to the Pentagon. They were escorted by F/A-18 Hornet jets launched from the USS George H.W. Bush aircraft carrier in the Gulf.
“We feel confident we can prevent [IS] from going up the mountain and slaughtering the people who are there,” Barack Obama said.
“But the next step, which is going to be complicated logistically, is how do we give safe passage for people down from the mountain and where can we ultimately relocate them so that they are safe.”
France would begin deliveries of first aid equipment to Iraq in the next few hours, President Francois Hollande’s office announced.
IS fighters meanwhile began hoisting their black flags at the Mosul dam, Iraq’s largest, and patrolling its perimeter, days after seizing the facility.
Barack Obama said a long-term strategy was needed to confront the jihadists.
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