A police spokesperson in Sydney said "it might take a bit of time" to resolve a situation in which an armed gunman has taken hostages at a downtown cafe.
Catherine Burn, the deputy commissioner of New South Wales Police, speaking nine hours into the standoff, said the goal was to resolve the situation peacefully even if it took throughout the night.
Live television footage broadcast soon after the incident began showed patrons inside the Lindt Chocolate Café standing with their hands pressed against the windows. A black-and-white flag similar to those used by Islamic State of Iraq and Syria (ISIS) militants was also visible.
Watch Australian Broadcasting Corporation's live coverage:
The attack occurred at about 9:44 a.m. local time, police said. About five hours into the drama in the Martin Place area of Australia's largest city, three people emerged from the building. Two women in cafe aprons left about an hour later.
It was unclear if the release of the five had been negotiated or was of their own volition.
Police would not say how many people remained inside the cafe, and said there was no information indicating that anyone inside the cafe had been harmed.
Burn said the number of hostages wasn't as high as 30, which had been an estimated figure reported early in the standoff.
She would not speculate as to a motive nor comment on social media posts allegedly from people inside the cafe, which detailed some of the gunman's demands.
Prime Minister Tony Abbott earlier urged for calm, and said Australians not in the affected area should go about their daily business.
In a video statement later in the day, he praised the police response to the "disturbing incident."
"It is profoundly shocking that innocent people should be held hostage by an armed person claiming political motivation," Abbott said, without getting into specifics about who might be behind the attack.
Part of Martin Place, home to the Reserve Bank of Australia, commercial banks and close to the state parliament, was closed off by armed police.
Police said the siege was contained in Sydney's central business district to the event at the cafe.
Trains and buses were stopped and roads were blocked in the area, with train operators saying there had been a bomb threat at Martin Place.
Major landmarks in the city such as the Sydney Opera House were evacuated.
Commonwealth Bank of Australia, Westpac Banking Corp and Australia and New Zealand Banking Group shut their Sydney branches located in the central business district.
Daily Mail Australia reported that just moments before the hostage situation at Martin Place began, police announced the arrest of a 25-year-old man from north-western Sydney as part of a major counterterrorism investigation.
The Australian Federal Police apprehended the terror suspect at a home in Beecroft in Sydney's leafy north-western suburbs this morning. Seven News identified the arrested man as Ali Al Talibi, but police would not confirm this information to Daily Mail Australia.
Police said there was nothing to indicate a link between the two events.
Australia, which is backing the United States and its escalating action against ISIS, is on high alert for attacks by radicalized Muslims or by home-grown fighters returning from fighting in the Middle East.
On mobile? See a map of Martin Place here.
Zain Ali, the head of the Islamic Studies Research Unit at the University of Auckland, said it was difficult to read the message on the banner in the cafe because media images showed only the lower part of the flag. But he believed it was the Shahada, or declaration of faith, largely because a black flag with white writing in a contemporary context often contains that message. He said he could make out the word "Muhammad."
Ali said the Shahada translates as "There is no deity of worship except God [Allah], and Muhammad is the messenger of God." It is considered the first pillar of Islam's five pillars of faith, and has been used by groups like al-Qaeda and ISIS jihadists but wasn't invented by them, Ali said.
Canadian Prime Minister Stephen Harper tweeted that the country's thoughts and prayers are with those in Australia.
Foreign Affairs Minister John Baird tweeted late Sunday that he was in touch with his Australian counterpart Julie Bishop. The Foreign Affairs office also told Canadians in Sydney "to be extremely vigilant."
"We continue to monitor the situation in Sydney closely," Baird tweeted.
On mobile? See the prime minister's tweet here.
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