Islamic State militants are skimming tens of millions of dollars a month from salaries paid to Iraqi government employees in occupied areas such as Mosul, and Baghdad continues to send the cash to maintain local support.

The group is using the money to fund operations, U.S. officials say, underlining the delicate balancing act U.S. and Iraqi governments face in what they know is a hearts-and-minds campaign against Islamic State ahead of a military operation to retake Mosul, for which U.S. officials are training Iraqi troops.

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