The PM has chaired an emergency Cobra meeting to discuss how to respond to Islamic State threats to kill a British hostage.
In a video, showing the beheading of US journalist Steven Sotloff, the killer showed another hostage he said was British.
Defence Secretary Philip Hammond was among the Cabinet members holding crisis talks on how to save the person, who UK media are not naming.
After this morning's meeting, he said "every possible option" was being considered to free the hostage, but that the latest killing would not change "our overall strategy" on Iraq.
"We are doing everything we can to reassure the family of the British hostage who was shown in the video," said Mr Hammond.
British forces are currently helping with reconnaissance and aid missions in the country, and the Government is also arming Kurdish forces.
The US has been launching airstrikes against IS in Iraq - and there are now some suggestions the UK should consider tougher action.
Former Security and Counter-Terrorism Minister Lord West cautioned against a "knee jerk" response, but told Sky News: "If a group decides to start killing British citizens - and that group also threatens our nation - it means we're in a very different game from intervening, for example, in Syria."
Philip Hammond said airstrikes had not been ruled out to help Iraq's government fight off IS militants.
"If we judge that airstrikes could be beneficial, could be the best way to do that, then we will certainly consider them but we have made no decision to do so at the moment."
David Cameron is due to clarify his position later at Prime Minister's Questions, before heading to a Nato meeting of world leaders in Newport, south Wales.
In a statement on Tuesday, the Prime Minister said he was disgusted at the "despicable and barbaric murder".
"My thoughts and prayers are with Mr Sotloff's family and friends as they deal with this appalling and tragic situation," said Mr Cameron.
"We have already been working hard to keep British people safe and we will continue to do all we can to protect our country and our people from these barbaric terrorists."
The Government has known about the hostage for some time and said previous Cobra meetings had been held on the matter.
Sky's Anushka Astahna said officials were worried publicity could have added a "premium" to the hostage's life and endangered the person further.
On Tuesday the PM also announced measures to counter the threat of British Jihadis returning from Iraq and Syria and carrying out attacks on home soil.
Police are to get powers to seize passports as fighters return to the UK, and Mr Cameron suggested they could even be barred from re-entering altogether.
The killer in the IS video is also believed to be British and is thought to be the same man who killed American James Foley last month.
Condemnation has come from all political corners, with Labour leader Ed Miliband speaking of the "cold-blooded brutality" of Islamic State offending "the values of people throughout the world".
The video comes a day before world leaders, including US President Barack Obama, meet for a Nato summit in Newport, south Wales, where discussions on the Ukraine crisis are set to dominate.
During a visit to Estonia, President Obama said his country "will not be intimidated" by IS and promised "our reach is long and justice will be served".
https://uk.news.yahoo.com/pm-chairs-cobra-meeting-british-hostage-094908886.html
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