About 250 foreign service staff are to be told they are "prime candidates" for nearly 50 jobs, state department human resources director Harry Thomas said.
If too few people volunteer, some will be ordered to go and risk dismissal if they refuse, Mr Thomas said.
Iraq postings have previously been filled on a voluntary basis.
Vietnam precedent
Mr Thomas said he hoped enough diplomats would volunteer to fill the one-year postings but that "we have many options, including dismissal from the foreign service".
The "prime candidates" will be informed by post on Monday and have 10 days to reply.
To sweeten the deal, an attractive financial package is being offered as well as a generous leave allowance.
The Baghdad embassy is considered a hardship posting by US diplomats because of the security risks and because spouses and children must be left at home.
American diplomats have been forced to work in undesirable postings before.
Some were given no choice but to take postings in some African countries in the 1970s and 1980s and in 1969 an entire class of new foreign service officers was sent to Vietnam.
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