United States General Lloyd Austin, who heads the US-led war against IS, is among the senior officers attending the two-day talks that opened Wednesday in Riyadh behind closed doors.
"I’m confident that they are looking at a firm plan, a co-ordinated plan, to empower the Iraqi army" against IS, the source said, asking for anonymity.
With "nobody" interested in putting ground troops into the country, strengthening Iraq’s 200,000-strong army against about 30,000 IS fighters remains the best option, he said.
Many Iraqi soldiers abandoned their weapons and uniforms when IS advanced last June, seizing large areas of the country.
The extremists also hold parts of Syria.
They have claimed atrocities including the burning alive of Jordanian fighter pilot Maaz al-Kassasbeh and the beheading of 21 Coptic Christians.
US officials say the Iraqi government army is being trained and armed to stage a major counter-offensive later in 2015. In the meantime the international coalition is using air raids to pressure IS supply lines.
Among Western nations, Australia, Belgium, Britain, Canada, Denmark, France and the Netherlands have all bombed IS in Iraq, alongside the US.
Germany said in December it would send about 100 soldiers to northern Iraq to train Kurdish peshmerga fighters battling the extremists.
Regional powerhouse Saudi Arabia has since September been participating in coalition air strikes against IS in Syria.
Jordan, the United Arab Emirates and Bahrain have also deployed warplanes.
"I think Syria is somewhat on the back burner now", the source said. "The first thing is, you have to clear the house in Iraq."
He said he did not expect any dramatic change in coalition strategy from the Riyadh meeting.
American commanders have placed a top priority on pushing back the extremists in Iraq, while warning it could take years before a moderate Syrian rebel force is ready to make headway against the jihadists in Syria.
The official Saudi Press Agency said the 26 participating nations at the Riyadh talks "aim to reach measures serving international and regional security."
Four similar meetings have occurred in other countries, SPA said.
The rise of IS in Libya has raised regional concern and was also expected to be discussed, the diplomatic source said.
On Monday, Egypt carried out its first announced military action against IS in neighbouring Libya, following the beheading of the Christians, most of whom are Egyptian.
