The U.N. High Commissioner for Refugees said it plans to focus on the deteriorating humanitarian situation facing people who are fleeing, as opposed to those returning home.
"The enormous scale of the needs, the ongoing violence and the difficulties in reaching the displaced make it a problem that is practically beyond the capacity of humanitarian agencies, including UNHCR," it said.
The 2006 budget of $29 million for its Iraq operation was still $9 million short, the agency said, adding that more funding is needed to address the refugee crisis.
At least 40,000 Iraqis a month were arriving in Syria, according to U.N. staffers monitoring the border. Refugees have also fled to Iran, and "tens of thousands" are headed to Turkey, Lebanon, Egypt, the Gulf States and Europe," the U.N. High Commissioner for Refugees said.
The agency estimated there are half a million Iraqis already in Jordan and 450,000 in Syria, adding that while some have been outside Iraq for a decade or more, arrivals have steadily risen since the war began in 2003.
Within Iraq itself, the Iraqi government and UNHCR estimate "more than 1.5 million people displaced ... including more than 365,000 newly displaced who have fled their homes and communities" since February.
That was when the Askariya mosque, a Shiite shrine in Samarra, was bombed, igniting Shiite-Sunni fighting.
Some of Iraq's 18 provinces have seen a tenfold increase in the number of internally displaced people since the beginning of the year, UNHCR said.
The UNHCR office appealed to neighboring countries "to continue extending hospitality" for Iraqis and for countries beyond the region to do the same.
Iraqis ranked first, with more than 8,100 applications, among some 40 nationalities seeking asylum in Europe in the first half of this year, the agency said.
Iraqi asylum claims went up 50 percent during the first of this year from the same period a year ago, according to statistics received from 36 industrialized countries, the agency said. Police commander killed; 14 bodies found
An explosion inside the headquarters of an elite police squad killed the commander of the force and his aide, and wounded eight other officers in the Iraqi city of Hilla on Friday morning, police said.
Police also found the corpses of 14 people who had been kidnapped in a Salaheddin province town.
Hilla police identified the commander as Col. Salam al-Mamoury, who was in charge of the force known as the "Scorpion team."
A preliminary investigation points to a bomb as the source of the blast.
Hilla is about 60 miles south of Baghdad in Babil province.
The bodies that were found belonged to the 14 construction workers who had been kidnapped by gunmen after leaving work Thursday in the mainly Sunni town of Dhuluiya, according to the province's Joint Coordination Center.
Their bodies were dumped in an orchard near town, with their throats slit and their hands and legs bound, said an official at the center.
Dhuluiya is about 50 miles north of Baghdad. U.S. soldier dead
A bomb killed a U.S. soldier "conducting vehicle operations" in northern Iraq Thursday, bringing the number of U.S. military deaths to 2,747, according to the military. Seven military contractors have also been killed.
The dead soldier was identified as a member of Task Force Lightning Soldier from the 105th Engineer Group.
So far in October, 40 U.S. troops have been killed. Other developments
# Terry Lloyd, a journalist with the British TV network ITN, was unlawfully killed in Iraq by American forces, a coroner ruled on Friday.
# British Gen. Richard Dannatt, the chief of the British army, on Friday appeared to back away from comments he made about withdrawing troops from Iraq "soon," insisting that meant a period of over two to three years.
CNN's Jomana Karadsheh and Mohammed Tawfeeq contributed to this report.