An unknown number of hostages remain in a central Sydney cafe tonight, held there since a gunman with an Islamic flag entered it about 9.45am (local time) today.
Five people fled the Lindt Chocolate Cafe in Martin Place during the day but police will not say whether they were released or escaped.
New South Wales Deputy Police Commissioner Catherine Burn said tonight police were negotiating with the man, the ABC reported.
"We have the best negotiators in the world and we are working through this methodically to make sure that nobody is injured," she said.
She said the five hostages who emerged from the cafe were being assessed to ensure they were in good health and were being spoken to by police.
NSW Health confirmed one of the hostages was in a satisfactory condition after being treated at St Vincent's Hospital for a pre-existing condition.
Just before 4pm local time, two men were seen running out a front door, one with his arms in the air.
A man wearing a Lindt apron also ran from a side door that was surrounded by heavily armed police.
About an hour later, two female cafe workers were seen running from the building. One, wearing an apron, ran into the arms of a police officer.
Media outlets contacted
The ABC is among numerous media outlets to have been contacted by hostages.
Police have asked media not to broadcast details about the phone calls.
A man wearing a backpack and bandana, and waving what appeared to be a gun, could be seen directing hostages inside the cafe.
At one point, he appeared to use a hostage as a human shield as he moved through the building.
Earlier, Ms Burn said she could not confirm how many people were being held hostage but police believed it was fewer than 30, the ABC reported.
She said people still inside buildings in Martin Place should stay indoors.
"Police will advise you as we go along," she said.
Black flag in window
Hostages were seen pressing a black flag displaying Arabic text against the cafe window soon after police were called to the busy pedestrian thoroughfare.
The text on the flag said: "There is no God but Allah" and "Muhammad is the messenger of God".
Some mosques, synagogues and churches are holding prayer vigils in Sydney and other Australian cities this evening.
This morning, emergency crews used ladders to evacuate people, including a baby, from upper levels of the building.
Hundreds of officers, many of them heavily armed and wearing body armour, took up positions in the area and several surrounding blocks were cleared.
Prime Minister Tony Abbott made a brief statement after chairing Cabinet's national security committee meeting this evening.
"It is profoundly shocking that innocent people should be held hostage by an armed person claiming political motivation," he said.
"Nevertheless, I can say that NSW Police and other agencies have responded to this incident with great professionalism.
"Yes, it has been a difficult day. Yes, it is a day which has tested us, but so far like Australians in all sorts of situations, we have risen to the challenge."
Staff from the Seven Network have been allowed back into their Martin Place headquarters, after the building was earlier evacuated and taken over by tactical response police.
Reporter Chris Reason told the ABC staff inside the Seven building had tried to count the number of people in the cafe and estimated 15 people were taken hostage before the five ran free.
"There are older people, young, male, female, but fortunately no children," he said.
"I've seen plates of food delivered to hostages by Lindt staff.
"That's important, because it's showing some humanity."
He said Channel Seven staff saw the armed man shouting at hostages after some of them ran out of the building.
Earlier, Seven producer Patrick Byrne said staff at the network watched the situation unfold before they were evacuated.
"We raced to the window and saw the shocking and chilling sight of people putting their hands up against the panes of glass at the cafe," he said.
"This was just extraordinary.
"Then, as we were looking wondering what was going on, it seemed to be like an armed hold-up, more police arrived at Martin Place.
"The area was cleared. People were kept back."
He said "gasps went through the newsroom" as the black flag was placed against one of the windows.
Woman flees after seeing gun
A man at the scene told ABC News he saw a woman try to enter the cafe before she reported seeing a man inside with a gun.
"There was a bit of a kerfuffle and the next thing she said, there was a blue bag, and she said 'there's a gun in the bag', and then the commotion started.
"She told everyone to get going and we're running out of the building."
White House briefed
The White House has confirmed United States president Barack Obama has been briefed about the siege by his homeland security and counter-terrorism chief.
The US Consulate in Sydney was evacuated this morning, and many shops, banks, cinemas, courts and businesses closed early.
Staff and tourists were evacuated from the Sydney Opera House at Circular Quay, about 1km away, and performances were cancelled.
Premier Mike Baird said police and the public were being "tested" but people should go about their business as normal.
Later, Mr Baird tweeted that he had spoken to "members of Sydney's valued Islamic community".
"Appreciated their support and reassured them we're in this together," he said.
Police have urged members of the public to remain calm and avoid the area, and some transport services have been cancelled.
An exclusion zone bordered by Hunter, Pitt, King and Phillip streets is in place.
Qantas is diverting all flights around Sydney CBD but all flights are operating as scheduled.
Sydney Airport said flights were operating normally.
CBD cafe owner Chris Dion said people coming into his business were "terrified".
"We've got the TV on here. Everybody is coming in to have a look and see what's going on in Martin Place," he said.
"I'm in disbelief to be honest.
"We live in a beautiful country and this is happening right here in Sydney?"
In a statement posted on Facebook, Lindt Chocolate Cafe Australia expressed its concern and thanked the public for its support.
"Our thoughts and prayers are with the staff and customers involved and all their friends and families," the statement said.
The Grand Mufti of Australia, Professor Ibrahim Abu Mohamed, released a statement saying the Muslim community was "devastated" by the incident.
"The Grand Mufti and the Australian National Imam Council condemn this criminal act unequivocally and reiterate that such actions are denounced in part and in whole in Islam."
Lebanese Muslim Association president Samier Dandan said Australian Muslim leaders were in talks to see if the community could help.
He said it was not known who was behind the siege and whether there were any links to the Australian Muslim community.
"Whether he is someone who belongs to the Australian Muslim community or not, we are still waiting for information to be provided by police, and based on that if there's something the Muslim community can do or assist, we are there."
Global Terrorism Research Centre director Professor Greg Barton said the black flag was clearly meant to signify a link with a terror group, possibly the Islamic State.
"It's likely a link with its groups, and what's happening in Syria, rather than a statement of faith," he told the ABC.
"But it could also be a single lone wolf attacker."
New South Wales authorities say people who work in the inner city near the Lindt cafe siege should stay home tomorrow.
Many of the high-rise buildings around the cafe in Martin Place were evacuated today, and the police are using some nearby buildings to monitor the siege.
State Premier Mike Baird said he did not expect workers close to the scene to be allowed to return in the morning.
The lights in the cafe were turned out about 8pm, the hostages still inside.