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US Secretary of State John Kerry: "The government formation challenge is the central challenge that we face''
The US secretary of state is in the northern Iraqi city of Irbil holding talks with Kurdish leaders as Sunni rebels continue their offensive.
John Kerry's central aim is to assist the formation of a new, more inclusive Iraqi unity government.
Mr Kerry said Iraq faced a moment of great urgency as its very existence was under threat.
The Sunni rebels say they have fully captured the country's main oil refinery at Baiji, north of Baghdad.
Meanwhile, a United Nations human rights team in Iraq has reported that at least 1,075 people have been killed in Iraq in June, most of them civilians.
The UN said the figures, which include a number of verified summary executions, should be viewed as an absolute minimum.
'Falling apart'Mr Kerry's meetings with Kurdish leaders come as the Kurdish region's President Massoud Barzani strongly suggested that it would seek formal independence from the rest of Iraq, a move the US would regard as destabilising in the current circumstances.
In a CNN interview, he said: "Iraq is obviously falling apart... The time is here for the Kurdistan people to determine their future and the decision of the people is what we are going to uphold."
Current Iraqi Prime Minister Nouri Maliki, a member of Iraq's Shia Muslim majority, has been criticised for concentrating power among his mostly Shia allies and excluding other groups including Sunni and Kurdish communities.
But Mr Kerry says Mr Maliki and other leaders have committed themselves to the "essential " step of forming an inclusive unity government by the end of the month.
Speaking in Irbil on Tuesday, Mr Kerry said: "The government formation challenge is the central challenge that we face.''
He added that Kurdish forces had proved "really critical" in recent days in slowing the Isis advance and supporting Iraqi forces.
Air strikesInsurgents, spearheaded by Islamists fighting under the banner of the Islamic State of Iraq and the Levant (Isis), have overrun a swathe of territory in the north and west including the second-biggest city, Mosul.
They are bearing down on a vital dam near Haditha and have captured all border crossings to Syria and Jordan.
The Baiji refinery, in Salahuddin province, had been under siege for 10 days, with militant attacks repulsed several times. The complex supplies a third of Iraq's refined fuel and the battle has already led to petrol rationing.
A rebel spokesman said it would now be handed over to local tribes to administer, and that the advance towards Baghdad would continue.
A local journalist told the BBC that 160 Iraqi government soldiers who had been defending the refinery had agreed to lay down their weapons and leave after negotiations mediated by local tribal leaders.
However, an Iraqi military spokesman insisted that all rebel attempts to take control of the refinery had been foiled.
Later, the AFP news agency quoted officials as saying that Iraqi air strikes in multiple areas of the town of Baiji near the refinery that began early on Tuesday had killed at least 19 people.
The BBC's Jim Muir in Irbil, northern Iraq, says the capture of the refinery is essential if the rebels are to keep control of the areas they have conquered and to supply Mosul with energy.
He adds that there is growing concern in the Kurdish region about the rebel advance, not least because it now effectively shares a border with Isis.
Jim Muir, BBC News, IrbilIt's been a really to-and-fro battle for Baiji. Now the rebels say it has finally been decided and they have taken over the whole complex. There are reports that they are now handing the refinery over to local tribes and technicians with the aim of getting fuel production going again. It has been disrupted for several days to huge effect. If true, the capture of the complex would enable the rebels to supply Mosul with energy, which is seen as vital to the viability of the region they are carving out.
Meanwhile, extremely concentrated political efforts are going on behind the scenes to get the politics in Baghdad right.
Only then would America wade in and start doing anything physical. There are urgent efforts to get parliament to meet on time on 1 July and to agree in advance who will be the new PM. Everybody I speak to says this will not be Nouri Maliki but one of about three other figures acceptable to Iran and America, which has a key role to play in trying to broker a deal.
Could Iraqi PM Maliki be forced out?
Who speaks for Iraqi Sunni Arabs?
Rebel gains alarm Iraq's neighbours
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Iraqi forces are "fighting back", reports John Simpson
The US, which pulled out of Iraq in 2011 after eight years of occupation following the 2003 invasion that toppled President Saddam Hussein, has already announced it is deploying some 300 military advisers to Iraq to help in the fight against the insurgents.
Neighbouring Iran says it opposes US intervention. Supreme Leader Ayatollah Ali Khamenei accused Washington of "seeking an Iraq under its hegemony and ruled by its stooges".
Isis has taken two key border crossings in Anbar province that link Iraq with Syria, pursuing its goal of forming a "caliphate" straddling both countries.
Further south, Sunni tribes aligned with Isis control the Traybil border crossing with Jordan, in the far west of Anbar province, as well as several nearby towns.
Are you in Iraq? How have you been affected by the insurgency? You can email your experiences to haveyoursay@bbc.co.uk, using the subject line 'Iraq'.
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