"Are we really saying that New Zealand, a country that stands up for what's right and fair, is going to be one of the few countries in the developed world that is going to do absolutely nothing? I don't think most New Zealanders would support that view."
There would be danger, he acknowledged.
"But last time I looked, New Zealand is known as a country that stands up for what's right and there are dozens and dozens of countries that are playing a role or are preparing to play a role.
"New Zealand has got to make the correct choices in terms of what we do, but I don't think doing nothing is an option."
Mr Hammond hosted a meeting in London in January of the foreign ministers of 21 countries involved in the fight against Isis where he was reported as saying it would take a year or two to push Isis out of Iraq.
Mr Key said the Cabinet did not discuss any troop deployment at yesterday's meeting. He hoped to make a decision around the end of the month.
He revealed that Iraqi politicians could soon be visiting New Zealand to discuss details of the contribution.
Mr Key also referred to the beheading by Isis at the weekend of a second Japanese hostage.
"It is standard practice for a terrorist group like Isis to intimidate countries but the counter-argument is that if you buy into that, it just allows them to get stronger.
After his talks as Foreign Secretary, Mr Hammond will don his political hat today and address the National Party caucus at Premier House about the British election in May and on international events.
When questioned about it, Mr Key likened it to Australian Labor leader and Opposition leader Bill Shorten addressing the New Zealand Labour Party conference. Mr Key himself had spoken to the Conservative Party conference in Britain in 2013.
Meanwhile, the first major poll on deploying troops suggests 50 per cent of New Zealanders support a non-combat troop training role, but a sizeable minority, 45 per cent, oppose it.