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UPDATE 3.30am AEDT TUESDAY: The siege is over after police stormed the building. Full details here.

Five people have managed to safely flee a cafe at Martin Place in central Sydney where a gunman is holding hostages.

The heart of Sydney’s CBD, the centre of big business in Australia’s largest city, is at a halt after a man walked into the popular Lindt Chocolat cafe about 9.40 am carrying a gun concealed in a bag.

A flag in the window of the cafe has been identified as a shahada flag, or the black flag of Islam, a general expression of the Muslim faith.

The faces of at least three customers and workers could be seen pressed against the cafe window with their eyes closed, holding up the flag.

Up to 20 people were reported to be inside and Police later confirmed the number was less than 30.

The five who managed to get out — three men and two woman — late this afternoon were being interviewed by police to see if they have information which can help.

Police negotiators have made contact with the hostage taker and are trying to work out what he wants. A number of media organisations have been contacted by hostages in the cafe, with two demands from the gunman: He wants delivery of an ISIS flag to the cafe, and also wishes to speak to Prime Minister Tony Abbott.

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Kathryn Chee, who works at the Lindt Café, was about to go to work when she got a call from her mother saying there was a siege.

Turning on the TV, she recognised her co-workers.

“Straight away I recognised three of my colleagues against the window, one of which was holding the flag,” she told the ABC.

“She had her eyes closed, her arms up holding the flag. Just the look of horror on her face, I guess the longing that it would end. I can’t imagine what was going through her head with her eyes closed. It was like using your eyes to get away from the place.”

Television footage indicated the hostage taker — who appeared to be a middle-aged man and wearing a bandanna with Islamic lettering — was using a young woman as a shield as he moved around the cafe in view of windows.

Later, Prime Minister Tony Abbott said: “We don’t know if this is politically motivated although there are some indications that it may be.”

He said the whole point of politically motivated violence is to scare people. “I would urge all Australians to go about their business as usual,” he said.

Thousands of city workers have been sent home early and the area around the cafe has been shut down.

The nearby Westpac Bank and a Channel Seven office were evacuated.

Police have been helping people trapped in other parts of the same building as the cafe to evacuate. They used ladders to move people from above the cafe.

In other buildings, police have been advising people to stay inside and stay away from windows. Banks shut branch offices in the area.

Patrick Byrne, a Channel Seven producer, told the ABC that Police came and ordered everyone off the floor.

Armed police patrol near the Lindt Cafe. Don Arnold/Getty Images

“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.

About 9.40 am, journalist and commentator Chris Kenny had just left the cafe after buying coffee when a woman tried to get in.

The door was locked and she saw a man with a gun inside.

“He has a gun,” she shouted.

Three motorcycle police were on scene immediately.

An employee at the Lindt cafe, Bruno, arrived for his shift just after the door to the cafe had been closed.

He told the ABC:

“I walked up to the door, everyone was sitting down, and the doors were locked, which was pretty weird because they’re never locked. One guy was walking around with a hat and a beard, just walking around. Then I saw the manager and he was talking to another guy, and told me it was an armed robbery, then the police showed up and cordoned off the whole area. Then everyone inside had their arms against the window, hands up.”

Heavily armed special operations police were assembled at the front of the Lindt cafe as well as at the rear. Police continued to push back the cordon around the area.

Police outside the Lindt Cafe in Martin Place, Sydney. Photo: Paul Colgan

Security around Martin Place. Photo: Paul Colgan

The blocks surrounding the location of the siege are the heart of business and finance in Australia, with the Reserve Bank of Australia head office a short walk away and nearby offices including the national headquarters of the Commonwealth Bank and Deutsche Bank.

Channel 7 is reported to be having “difficulty” getting through to their reporters on the ground. The television station is speculating that police may have jammed mobile network.

The Australian Federal Police had been scheduled to hold a media conference this morning on its disruption of terrorism operations in Western Sydney, but the event was cancelled soon after the siege began.

Elizabeth Street is closed and one north bound lane of Macquarie Street is closed and Police are beginning to expand the exclusion zone. Trains are not stopping at the Martin Place station.

Deputy Prime Minister Warren Truss released a statement saying reports that airspace over Sydney had been shut were incorrect.

“The airspace over the Sydney CBD is not shut down,” he said. “There are choppers in the air and air traffic is being rerouted. At this stage no impact on the air traffic network.”

Qantas said it flights are diverting around Sydney’s CBD but are operating as per schedule at stage.

Prime Minister Abbott spoke by phone with Premier Mike Baird and offered him all possible Commonwealth support and assistance.

The National Security Committee of Cabinet has also convened for briefings on the situation.

“This is obviously a deeply concerning incident but all Australians should be reassured that our law enforcement and security agencies are well trained and equipped and are responding in a thorough and professional manner,” Mr Abbott said.

Meanwhile the Sydney Opera House has been evacuated after a package was found. It was not known whether there is a connection to the cafe incident.

The Lindt Chocolate Cafe Australia Facebook page posted a message regarding the hostage situation:

We would like to thank everyone for their thoughts and kind support over the current situation at the Lindt Chocolate Café at Martin Place. We are deeply concerned over this serious incident and our thoughts and prayers are with the staff and customers involved and all their friends and families. The matter is being dealt with by the authorities and we are waiting for any updates from them.

In September, hundreds of police were involved in a series of counter-terrorism raids across Sydney. Police at the time said there had been an ISIS-inspired plot to take a member of the public hostage and execute them.

The radicalisation of Australian Muslims has been a major concern for the nation’s security agencies. Earlier this year it was reported Australia had become the highest per capita contributor of foreign fighters to the ISIS forces in Iraq and Syria.

Further coverage:

SYDNEY SIEGE LATEST: Five Hostages Are Out Of The Cafe And Police Are Negotiating With The Gunman

The Sydney Opera House Has Been Evacuated

SYDNEY SIEGE UPDATE: Here’s What’s Happening To The City As A Result

BREAKING: Here’s Live Footage Of The Martin Place Hostage Situation

Look At The Air Traffic Clearing Over The Sydney CBD As The Siege Unfolds

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