By Michael Georgy

BAGHDAD (Reuters) - Islamic State, a militant group that witnesses and officials say has executed hundreds of members of Iraq's Yazidis, has released a video that seeks to show it enlightened hundreds of members of the religious minority by converting them to Islam.

The production was issued not long after the group on Tuesday released a video showing one of its black-clad fighters beheading American journalist James Foley, sparking international outrage.

The Yazidis, followers of an ancient religion derived from Zoroastrianism who are part of the country's Kurdish minority, have paid the highest price for Islamic State's dramatic advance through northern Iraq.

Islamic State militants, widely seen as more hardline than al Qaeda, storm into villages armed with machine guns and give Yazidis a simple choice: convert to Islam or die.

Witnesses have said most of their hundreds of victims were shot dead at close range, while others including women and children were buried alive. Women who avoided death were rounded up and taken away as slaves, witnesses said. The threat to the Yazidis was one reason cited by U.S. President Barack Obama when he launched U.S. air strikes against Islamic State in parts of Iraq earlier this month.

The Islamic State video, which the group called "Hundreds of Yazidis convert to Islam", gives no indication of the bloodshed that prompted tens of thousands of people to flee.

In the film, Islamic State fighters say they are misunderstood as they sit on a wall in Mount Sinjar, the Yazidis' ancient homeland.

Witnesses earlier told Reuters that residents who dared to stay hung white flags on the homes to show their complete surrender to Islamic State, which has declared a caliphate in parts of Iraq and Syria it controls and threatened to march on Baghdad.

In the video, two Islamic State fighters - one a bearded middle-aged man dressed in black with an AK-47 assault rifle and another in a crisp grey military uniform and camouflage cap - field questions in Arabic from what appears to be an Islamic State interviewer.

Story continues

"What has been said is the opposite of reality," the older man says. He also says that Islamic State has provided the Yazidis with everything they need.

"Men, women and children have converted and I was with them and they are happy with their conversions," he says, adding: "We advise the Yazidis to come down from the mountain and convert."

This was a reference to Mount Sinjar, where thousands who feared death at the hands of the militants took refuge.

"If they stay on the mountain, they will die of starvation and thirst. This talk about aid from Western and crusader countries is all lies. If they convert, we will give them everything they need. They will live a happy life."

The video then shows dozens of Yazidis getting off a bus, walking past a truck mounted with an anti-aircraft weapon and hugging Islamic State militants.

Second later, hundreds of people are sitting on the floor of what appears to be a school beneath black Islamic State flags, hoisted in every town the group has captured since it arrived from Syria in June and swept through the north almost unopposed by Iraq's army.

Mostly young men, they prepare for the conversion ritual.

"Right now you are infidels. After this you will become Muslims and you will have rights," an Islamic State fighter tells them. "Repeat after me."

(Editing by G Crosse and Frances Kerry)