A top government spokesman said conditions were not right for the immediate dispatch of troops.
"There should be a situation where our country's Self-Defence Forces can conduct their activities fully," Chief Cabinet Secretary Yasuo Fakuda said on Thursday.
"But to our regret, the situation is not like that," he added.
Japan had earlier decided to send troops to Iraq by year-end.
The escalating attacks on US-led coalition forces in Iraq have put Japanese Prime Minister Junichiro Koizumi in a bind.
Though Koizumi agreed to send troops to further cement already strong ties with the US, he risks discontent back home if Japanese troops are to face casualties in Iraq.
The chief cabinet secretary however insisted that Japan had not changed mind about helping in Iraq's reconstruction.
"We have a consistent intention to carry out a reconstruction aid and humanitarian aid as soon as possible," Fakuda said.
Asked about the timing of a dispatch, he said a decision would be taken only after ascertaining the situation.
The troop dispatch is controversial in Japan, where many voters opposed the US-led war and whose military have not fired a shot in combat since 1945.