Heavily armed policemen stand guard outside the building containing the Lindt cafe, where hostages are being held, at Martin Place in central Sydney, Dec 16, 2014. [Photo/Agencies]

Live report on Sydney hostage Siege

SYDNEY - Amid a barrage of gunfire, police stormed a cafe in the heart of Sydney early Tuesday to end a 16-hour hostage siege by an Iranian-born gunman. Police said three people were killed - the gunman and two of the hostages - and four others were wounded.

Police raided the Lindt Chocolat Cafe after they heard a number of gunshots from inside, said New South Wales state police Commissioner Andrew Scipione.

"They made the call because they believed that at that time, if they didn't enter, there would have been many more lives lost," he said.

The gunman was identified as Man Haron Monis, who once was prosecuted for sending offensive letters to families of Australian troops killed in Afghanistan.

Scipione wouldn't say whether the two hostages who were killed - a 34-year-old man and a 38-year-old woman - were caught in crossfire, or shot by the gunman. Among the four wounded was a police officer shot in the face.

"Until we were involved in this emergency action, we believe that no one had been injured. That changed. We changed our tactic," he said, adding that there had been a total of 17 hostages taken in the cafe when the siege began.

The standoff ended when a loud bang was heard from the cafe and five people ran out. Shortly after, police swooped in, amid heavy gunfire, shouts and flashes. A police bomb disposal robot also was sent into the building, but no explosives were found.

Police said an investigation is underway because police were involved in an incident in which people died.

Local media identified the gunman as 50-year-old Monis, and a police official confirmed his identity. Under department rules, officials do not identify themselves unless speaking at a formal news conference.

Monis has long been on officials' radar. Last year, he was sentenced to 300 hours of community service for using the postal service to send what a judge called "grossly offensive" letters to families of soldiers killed in Afghanistan between 2007 and 2009.

At the time, Monis said his letters were "flowers of advice," adding: "Always, I stand behind my beliefs."

He was later charged with being an accessory to the murder of his ex-wife. Earlier this year, he was charged with the sexual assault of a woman in 2002. He has been out on bail on the charges.

"This is a one-off random individual. It's not a concerted terrorism event or act. It's a damaged goods individual who's done something outrageous," his former lawyer, Manny Conditsis, told Australian Broadcasting Corp.

"His ideology is just so strong and so powerful that it clouds his vision for common sense and objectiveness," Conditsis said.

The siege began around 9:45 a.m. in Martin Place, a plaza in Sydney's financial and shopping district that is packed with holiday shoppers this time of year. Many of those inside the cafe would have been taken captive as they stopped in for their morning coffees.

Hundreds of police blanketed the city as streets were closed and offices evacuated. The public was told to stay away from Martin Place, site of the state premier's office, the Reserve Bank of Australia, and the headquarters of two of the nation's largest banks. The state parliament house is a few blocks away, and the landmark Sydney Opera House also is nearby.

Throughout the day, several people were seen with their arms in the air and hands pressed against the window of the cafe, with two people holding up a black flag with the Shahada, or Islamic declaration of faith, written on it.

The Shahada translates as "There is no god but God and Muhammad is his messenger." It is considered the first of Islam's five pillars of faith, and is similar to the Lord's Prayer in Christianity. It is pervasive throughout Islamic culture, including the green flag of Saudi Arabia. Jihadis have used the Shahada in their own black flag.

Channel 10 news said it received a video in which a hostage in the cafe had relayed the gunman's demands. The station said police requested they not broadcast it, and Scipione separately asked all media that might be contacted by the gunman to urge him instead to talk to police.

A number of Australian Muslim groups condemned the hostage-taking in a joint statement and said the flag's inscription was a "testimony of faith that has been misappropriated by misguided individuals."

In a show of solidarity, many Australians offered on Twitter to accompany people dressed in Muslim clothes who were afraid of a backlash from the cafe siege. The hashtag (hash)IllRideWithYou was used more than 90,000 times by late Monday evening.

Seven Network television news staff watched the gunman and hostages for hours from a fourth floor window of their Sydney offices, opposite the cafe.