By Warren Strobel and Lesley Wroughton

WASHINGTON (Reuters) - The battlefield momentum in Iraq and Syria has shifted against Islamic State, U.S. Secretary of State John Kerry said on Wednesday, but the international community must now also confront the challenge of stabilizing newly liberated areas.

"The momentum has shifted," Kerry told an international conference to raise funds for Iraq at a critical juncture in the military campaign. "The new challenge that we face is securing and aiding for the recovery of a liberated area."

Lise Grande, the United Nations' humanitarian coordinator for Iraq, warned that military victories will prove transient if the needs of Iraqis displaced by the conflict are not addressed.

"The military campaign will have achieved a great short-term success, but perhaps little else of enduring impact," she said.

The officials spoke as defense and foreign ministers gathered to also agree on next steps in the two-year-long fight against Islamic State, in particular the militant group's bastion in Mosul.

The Iraq donor conference raised more than $2.1 billion in aid, State Department spokesman John Kirby said in a statement. The United Nations has said that, under a worst-case scenario, it could take $2 billion in relief and stabilization funds to deal just with the civilian impact of the Mosul battle and its aftermath.

With the early stages of the Mosul campaign underway, plans are still being finalized to provide urgent humanitarian aid and restore basic services and security for residents and as many as 2.4 million displaced people.

"Most of our conversations today ... were about what happens after the defeat of ISIL," U.S. Defense Secretary Ash Carter said after a separate meeting of about 30 defense ministers at Joint Base Andrews outside Washington, using an acronym for Islamic State.

"The biggest strategic concern of the defense ministers here was for the stabilization and reconstruction ... and making sure our planning and execution of that is in time for the execution of the military aspect," Carter said.

Some of the defense ministers indicated their countries' intent to contribute more to the military campaign, he said.

Wednesday's meetings will be followed by a joint session of foreign and defense chiefs on Thursday to discuss the broader fight against Islamic State not only in Syria and Iraq, but also in Libya and globally.

A spate of recent attacks claimed or apparently inspired by Islamic State, such as a truck attack in Nice, France, that killed 84 people last week, formed a grim backdrop to the Washington meetings.

"We are nowhere near the defeat of Daesh. It's an octopus, it's a snake with many heads," said Dutch Foreign Minister Bert Koenders, using a derogatory Arabic term for the group.

Around Mosul, the United Nations is preparing for what it says will be the largest humanitarian relief operation so far this year as terrified people stream out of the path of the advancing Iraqi military and flee from the city itself. They will need shelter, food and water, and sanitation for three to 12 months, depending on the extent of the city's destruction.

The U.N. estimates that under the worst scenario, more than one million people could be displaced from Mosul and another 830,000 from a populated corridor south of the city, adding to the burden of caring for 3.5 million Iraqis already displaced.

U.S. representative to the United Nations Samantha Power told donors they must pony up the money now.

"Commitments made today must be met, promptly and in full," she said. "In one recent humanitarian campaign after another, we have seen multiple donors over-promise and under-deliver."

Mosul, which Islamic State seized from a collapsing Iraqi army in June 2014, is Iraq's second biggest city and home to a combustible mixture of Sunni Arabs, Kurds, Turkmen and others.

Kerry cautioned that the Shi'ite-led Iraqi government, which the country's Sunni Muslim minority views with distrust, must embrace political reconciliation if Islamic State is to be defeated.

"To eliminate Daesh from Iraq permanently, the government of Baghdad has got to be viewed as responsive to the needs of the people in all parts of the country," he said.

At a press conference later, Kerry praised the government of Prime Minister Haider al-Abadi, but said: "We would like to see some reforms moving faster."

Officials in Erbil, the capital of Iraq's autonomous Kurdish region, criticized the coalition for excluding the Kurds from the Washington gathering. Masrour Barzani, head of the regional security council, called it "a travesty" on Twitter.

Although Iraqi and U.S. officials have not announced a timetable for moving on Mosul, a senior Baghdad-based diplomat said Abadi wants to advance the start of the campaign to October after the seizure of Falluja from Islamic State last month.

(Additional reporting by Idrees Ali, Yeganeh Torbati and Andrea Shalal; Editing by James Dalgleish)