* Islamic State sees Yazidis as devil worshipers
* Minority group feel let down by Kurds
* A sea of white flags
By Ahmed Rasheed and Michael Georgy
BAGHDAD, Aug 5 (Reuters) - When the Islamic State made another dramatic push through northern Iraq, many Iraqis fled their towns and villages before the Sunni militants notorious for beheadings arrived.
But the Yazidis of the town of Sinjar were especially terrified. The Islamic State, whose methods seem excessive even to al Qaeda, regards the minority ethnic group as "devil worshippers", making them prime candidates for the sword.
Tens of thousands fled the weekend assault on Sinjar and are now surrounded, according to witnesses and the United Nations, after the Sunni militants inflicted a humiliating defeat on Kurdish forces who had held towns in the area for years.
The Islamic State captured three towns and a fifth oil field and reached Iraq's biggest dam, consolidating gains made after a lightning sweep through the north in June which poses the biggest threat to Iraq since the fall of Saddam Hussein.
Residents said about 50 people were killed after the Sunni militants, who have declared parts of Iraq and Syria they control a caliphate, arrived in Sinjar late on Saturday. While 20 were killed trying to defend that town, it's not clear how the others died.
Many panicked Yazidis scrambled to find water and food for their children before climbing into their vehicles and rushing to surrounding mountains.
Some did not manage to escape.
"The innocent people of Sinjar were slaughtered. Men were killed and women have been taken as slaves by Islamic State fighters," said Vian Dakheel, a member of parliament from the Yazidi community, bursting into tears.
The Yazidis, followers of an ancient religion derived from Zoroastrianism, are spread over northern Iraq and are part of the country's Kurdish minority.
Many of their villages were destroyed when Saddam Hussein's troops tried to crush the Kurds. Some were taken away by the executed former dictator's intelligence agents.
Now they are on the defensive again years after the fall of Saddam raised hopes of a brighter future for all.
Some of the most vulnerable could not withstand the weekend offensive. Almost 70 children between the ages of one month and four died of thirst or hunger, said Dakheel.
The U.N. children's agency said families who fled the area are in immediate need of urgent assistance, including up to 25,000 children stranded in mountains.
"The reported deaths of 40 children from minority groups who were displaced from Sinjar city and district by armed violence are of extreme concern," UNICEF said in a statement.
"According to official reports received by UNICEF, these children from the Yazidi minority died as a direct consequence of violence, displacement and dehydration over the past two days."
Sinjar district's estimated population of 308,000 includes about 150,000 children, said UNICEF.
When the Islamic State swept into northern Iraq, the U.S.-trained army virtually crumbled. Thousands of soldiers fled.
Hoping to fill a security vacuum, Kurdish fighters known as peshmerga who often boast of their bravery in battles with Saddam Hussein's troops, stepped in, as did Shi'ite militias.
But the Islamic State routed the Kurds in the weekend surge, using artillery, mortars and machineguns seized from Iraqi soldiers compared to the Kurds' mostly AK-47 assault rifles.
"We are feeling so frustrated to see the peshmerga fleeing the town and leaving us alone face to face with Islamic State fighters," said farmer Haji Beso, 47, a resident of Sinjar who also operates a small pickup truck that transports goods.
"It was their duty to protect innocent people and die if they had to but they chose to flee without shooting a bullet."
Sinjar, the ancestral home to the Yazidi religious sect, felt helpless. Then the exodus began.
"After the peshmerga let us down and fled without fighting we couldn't stay because we know that we would need a miracle to avoid the Islamic State's brutality," said Alyas Khudhir, a 33-year-old government employee with three children.
"I'm sleeping with my kids on rocks and food is scarce. I have collected some tree leafs to feed my kids if food runs out. We are slowly dying and nobody cares about us."
The refugees spoke to Reuters in telephone interviews.
While the Islamist State sets its sights on new territory, there is no sign Iraq's bickering politicians will be able to form a power-sharing government soon to counter the insurgency.
Prime Minister Nuri al-Maliki is defying calls by Sunnis, Kurds, some fellow Shi'ites and power broker Iran to step aside and make room for a less polarising figure who could ease sectarian tensions causing the worst bloodshed since the height of a civil war in 2006-2007.
Maliki has ordered his air force to help the Kurds, who have vowed to launch a counter-offensive against the Islamic State. But there is little sign of relief on the ground.
Kareem Sido, 60, who grows tomatoes and cucumbers on his farm, decided to return to Sinjar when conditions on the mountain became too desperate.
Like many he was scared that snakes and scorpions could hurt his loved ones. After watching two babies die from the heat, he decided to return home.
On arrival, he was stopped at an Islamic State checkpoint. A fighter asked him why he had left and said there was no reason to fear the Islamic State, as long as he played by its rules.
"All you have to do is put a white flag on the roof of your house and declare you will obey us," Sido quoted the militant as saying.
When he climbed up to his roof he looked across Sinjar and saw a sea of white flags. (Writing by Michael Georgy; Editing by Paul Taylor)