"It may or may not be the case in Iraq on the basis that we send trainers there."
He said New Zealand spies would not help to identify targets for coalition airstrikes, but "that position could always change".
As part of the Five Eyes agreement, New Zealand provided broad intelligence into "a big melting pot of information" which was shared with the US, Canada, Britain, and Australia.
"But if you're talking about gathering information, packaging it up and saying 'that's the target you might want to focus on', that's not happening," Mr Key said.
Labour Party leader Andrew Little said if intelligence agencies were called on to assist with airstrikes, it would go against Mr Key's assurance that any deployment would be "behind the wire" in a training capacity.
Mr Little said the airstrikes by coalition forces had been successful in forcing back Islamic State troops. But if New Zealand was to assist with identifying targets, its troops would have to leave their military base to gather intelligence.
He reiterated that Labour was opposed to sending New Zealand troops in any role to fight in a conflict which was "unwinnable".
Labour's foreign affairs spokesman David Shearer said providing intelligence for drone strikes would be an escalation of the training role outlined by Government.
The Prime Minister was also asked this morning whether Government had received any direct or indirect communication from the Islamic State.
Mr Key said: "Not direct communication that I've been made aware of. I can't absolutely say within the whole system."
Author Nicky Hager said New Zealand could not go into Iraq with an intelligence role and remain in a non-combat position.
Speaking on Radio New Zealand this morning, Mr Hager said Mr Key was "very keen" to stress Kiwi troops would not be on the front line, saying he believed this was because National's polling was "telling them that many New Zealanders are uncomfortable with going into another war in the Middle East at the moment in a combat role".
"As soon as you get to intelligence, it's definitely a combat role," he said.
New Zealand's previous experience assisting the United States military with intelligence operations in Afghanistan showed that "far from being non-combat, it was at the heart - the bloodiest heart - of the fighting", he said. Such roles informed front line troops or special forces of the whereabouts of potential terrorists or their weapons, as well as providing information from phone taps and other such intelligence gathering activities, which were then used in the field, he said.
"You can't actually do nation building and solve problems by going into an area and just dropping bombs, and that's what New Zealand is going to be involved in if we have that intelligence role," Mr Hager said.
"We're going to be trying to solve a problem from 10,000ft with 1000lb bombs or with special forces raiding houses in the night. We should be laughing at the suggestion, because we've just had a whole decade of experience in Afghanistan and Iraq where that was shown to not work."
Mr Hager said there was "strong diplomatic pressure on New Zealand to follow their Five Eyes partners" into helping Iraq fight Isis.
"We won't be doing what New Zealanders think we should be doing - we won't be helping people across the road or doing friendly things in a very nasty internal war. We will be helping to fight the internal war, which means all the follies of it and all the things that go wrong, New Zealanders will be a part of."
