In a hot, dusty field in the middle of Iraq's largest refugee camp, there is a party with face-painting, balloons, streamers, ballgames and hundreds of children having the time of their lives.

They are among the half-a-million Iraqi children who have been living under Islamic State (IS) rule for the past two years, in a climate of violence and fear, with activities like music and dancing banned.

The children were forced to learn violent IS curriculum at school, attend public floggings and beheadings and encouraged to spy on their own parents if they saw them breaking the militants' fundamentalist rules.

"Most of them have a family member that was shot or kidnapped," said Anya Smid, from Italian charity TDH, which organised the party with UNICEF.

The full scale of what they have endured has only come to light after thousands of Iraqi families fled their villages and towns as the military effort to defeat IS gathers pace.

Children had their faces painted at Debaga refugee camp. ( ABC News: Sophie McNeill )

The party took place as Debaga refugee camp opened a new children's play area.

"We do have a couple of really, really tragic cases and what we are doing here is providing child-friendly spaces and at the same time … child protection units," Ms Smid said.

Mohammad, 13, had just arrived from the IS-held town of Hawijeh.

"I was afraid of everything … they used to bring people and slaughter them," he said.

Mohammad lost his arm during IS fighting in his village. ( ABC News: Sophie McNeill )

IS took over the school system and imposed their own curriculum upon hundreds of thousands of Iraqi children, with the jihadist militants teaching their bloodthirsty methods to the youngest of minds.

"They used to teach us maths by saying one bullet plus one bullet equals two bullets," Mohammad said.

"This was really scary. Everything was scary."

Many parents risked their lives by refusing to send their kids to school under IS.

The children were forced to learn violent IS curriculum at school. ( ABC News: Sophie McNeill )

Father-of-eight Abu Ahmad and his family recently escaped their IS-held village in the middle of the night, walking for hours to get to the camp.

"We didn't let our kids attend the ISIS schools. Even when they pressured us," he said.

"They would contact us, asking for the reason: 'Why are your kids not attending school?' 'Oh tomorrow', we would say'."

Abu Ahmad said his children did not attend IS schools. ( ABC News: Sophie McNeill )

Mr Ahmad said his children had lived in constant fear under IS and the militants encouraged them to spy on their own parents.

"ISIS was using this technique. Getting kids to inform on their parents if they were smoking or breaking any of Islamic State's rules," he said.

"During the time of ISIS rule we gave up on everything in life, for us and for our kids."

Temporary learning centres have been set up at the camp.

"A lot of children from these newly-displaced families from around Mosul have in fact missed out on school for up to two years," said Becky Bakr Abdulla, from the Norwegian Refugee Council, which runs the catch-up school programs.

"Or some of them have been under ISIS school and that has been very traumatic and damaging as well."

Many children at Debaga camp have not been to school for two years. ( ABC News: Sophie McNeill )

If Mosul falls in the coming weeks or months, the number of children to escape ISIS rule will jump.

Aid agencies said they desperately need more funds to care for the children and help them recover from the last two years.

"Many of these children are traumatised," Ms Abdulla said.

"They experience difficulties in focusing. Their stress levels are high and many of them have nightmares.

Ms Abdulla said the classes involving arts, music and sports with trained staff helped the children communicate what they had been through,

"Without more international support, without more funding, without more donations, we won't be able to meet the needs of over 1 million people escaping, together with their children … who one day are meant to build up this country."