Sydney: Terrified hostages cowered inside a cafe in central Sydney Monday with an Islamic flag displayed against a window, sparking a security lockdown in an area home to government and corporate headquarters.
Martin Place was evacuated as scores of armed police surrounded the Lindt chocolate cafe, with TV pictures showing a flag - black with white Arabic writing - held to a window by customers.
It appears to be the shahada, or profession of faith in Islam, and says: "There is no god but Allah; Mohammed is the Messenger of Allah."
Adding to the unfolding drama, the nearby Sydney Opera House was also cleared by police, apparently over a suspicious package. It was not clear if the two incidents were related.
Australia has been on high alert after the government raised concerns that citizens who have fought alongside jihadists in Iraq and Syria could return home radicalised and capable of carrying out attacks.
Prime Minister Tony Abbott convened a national security meeting to deal with the "disturbing" developments, suggesting only one person was responsible for the Lindt cafe incident.
"We don't yet know the motivation of the perpetrator, we don't know whether this is politically motivated although obviously there are some indications that it could be," he said.
"The whole point of politically motivated violence is to scare people out of being themselves.
"Australia is a peaceful, open, and generous society. Nothing should ever change that and that's why I would urge all Australians today to go about their business as usual," he added.
Reports said anywhere between a dozen and 50 people were in the Lindt cafe. Several were seen with their arms in the air.
"Police are dealing with an armed incident and specialist officers are attempting to make contact with those inside a cafe," New South Wales state police said in a statement.
Patrick Byrne, a producer at Channel Seven whose newsroom is opposite the cafe, said staff at the television station watched the situation unfold.
"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 told the Australian Broadcasting Corporation.
"This was just extraordinary."
- National security response -
Martin Place is Sydney's financial centre and houses several prominent buildings, including the New South Wales parliament, the US consulate, the country's central bank and the Commonwealth Bank of Australia.
US President Barack Obama has been briefed about the crisis in Sydney, a White House official said.
The incident came just minutes before police announced a man had been arrested in Sydney on alleged terrorism offences.
They said the 25-year-old was seized as part of "continuing investigations into the planning of a terrorist attack on Australian soil and the facilitation of travel of Australian citizens to Syria to engage in armed combat".
It was not clear if the matters were related.
The arrest comes after the government in September raised its terror threat level and police conducted large-scale counter-terror raids across the country. Only two people were charged despite 800 officers being involved in the operation.
More than 70 Australians are estimated to be fighting for Islamic militants in Iraq and Syria. At least 20 have died and there are mounting concerns that increasing numbers of youths are being radicalised and could mount attacks at home.
Journalist Chris Kenny, who was in the Lindt cafe just before the siege began, said he understood the automatic glass sliding doors had been disabled.
"One woman said she tried to go into the shop just after I came out with my takeaway coffee but the doors wouldn't open," he told the newspaper he works for, The Australian.
"So obviously whoever is doing this has disabled the automatic glass sliding doors to stop anyone else going in and she said immediately she could see there was a weapon.
"She mentioned it being taken out of a blue bag and people were straight away asked to put up their hands."