By Lin Noueihed and Omar Fahmy

CAIRO, Sept 7 (Reuters) - Arab foreign ministers meeting in Cairo are set to issue a resolution on Sunday backing Iraqi and U.S. efforts to confront Islamic State insurgents who have overrun large areas of Iraq and Syria and declared a cross-border caliphate, diplomats said.

Arab League chief Nabil al-Arabi told the opening session that the rise of the group in Iraqchallenged not merely the authority of the state but "its very existence and the existence of other states", and called for a clear and decisive resolution to confront terrorism militarily, politically, economically and culturally.

Several foreign ministers spoke of the gravity of the challenge posed by Islamic State in Iraq as well as the violence that has engulfed Libya and other regions.

An Iraqi diplomatic source said Baghdad had drafted a resolution that would endorse its efforts to confront the militants and condemn Islamic State's actions as war crimes and crimes against humanity.

Other diplomatic sources said the Arab League would agree a resolution endorsing the U.S. aerial campaign against the group. Egypt's official Mena news agency quoted a source saying the ministers would agree to coordinate with the United States.

It was not immediately clear if Washington would be named in the final text as the foreign ministers hammered out the details into Sunday evening.

However, the Iraqi draft does endorse a U.N. Security Council resolution passed last month that urges member states to "act to suppress the flow of foreign fighters, financing and other support to Islamist extremist groups in Iraq and Syria".

Diplomatic sources said backing for Iraqi efforts and the U.N. resolution could be read as offering tacit support for U.S. action, even if the United States is not named in the final text.

Arabi suggested that military action could take place under the umbrella of an Arab League joint defense pact.

President Barack Obama declared last week that the United States was ready to "take out" leaders of Islamic State, and said NATO allies were prepared to join military action against a movement that he labeled a major threat to the West.

U.S. warplanes carried out four strikes against Islamic State militants threatening western Iraq's Haditha Dam early on Sunday, witnesses and senior officials said, broadening Washington's campaign against the fighters.

Obama would like Gulf Arab states to consider military action, but also to support Sunni Muslim moderates in Iraq and Syria who could undermine the appeal of Islamic State. He also wants Islamic State's sources of funding cut off, a point on which the Iraqi draft resolution touches.

U.S. Secretary of State John Kerry is to travel to Saudi Arabia and Jordan in the coming week for talks with Gulf leaders to determine whether they are prepared to back up their anti-jihadist rhetoric with action.

(Editing by Kevin Liffey)