SYDNEY » The deadly siege began in the most incongruous of ways, on a sunny Monday morning inside a cheerful cafe in the heart of Australia’s largest city. It ended 16 hours later in a barrage of gunfire that left two hostages and the Iranian-born gunman dead, and a nation that has long prided itself on its peace rocked to its core.

The gunman, a self-styled cleric and a refugee with a sordid criminal history, burst into the Lindt Chocolat Cafe and took 17 people hostage. He forced some to hold a flag with an Islamic declaration of faith above the shop window’s festive inscription of "Merry Christmas."

As the standoff stretched through the day into nightfall with no apparent solution in sight, police stormed the cafe around 2 a.m. Tuesday when they heard gunfire 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," Scipione said.

A loud bang rang out, several hostages ran from the building and 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.

The gunman was identified as 50-year-old Man Haron Monis, who once was prosecuted for sending offensive letters to families of Australian troops killed in Afghanistan.

Prime Minister Tony Abbott said Monis had "a long history of violent crime, infatuation with extremism and mental instability."

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 their captor.

One of the victims was Sydney lawyer and mother-of-three Katrina Dawson.

"Katrina was one of our best and brightest barristers who will be greatly missed by her colleagues and friends" Jane Needham, president of the New South Wales Bar Association, said in a statement.

The other victim was identified in Australian media as the manager of the cafe, Tori Johnson.

Deputy Police Commissioner Catherine Burn said three women were treated in hospital for gunshot wounds and were in stable condition. A police officer was treated for shotgun pellet wounds and discharged, she said.

Burn said another two women were treated for "health and welfare purposes." Australian Broadcasting Corp. reported that those women were pregnant.

Burn said police do not know what had motivated Monis. She declined to detail his demands.

"This is a man who had serious history of criminal offences and a history of violence. This was a man that we do believe had some extremist views and we also believe that he was unstable," Burn told reporters.

She confirmed that Monis was free on bail when he died. Police were investigating whether he was the registered owner of the shotgun that he used.

Monis was convicted and sentenced last year to 300 hours of community service for sending 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."

Monis later was 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.

"He had a long history of violent crime, infatuation with extremism and mental instability," Abbott said. "As the siege unfolded yesterday, he sought to cloak his actions with the symbolism of the ISIL death cult. Tragically, there are people in our community ready to engage in politically motivated violence."

"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.

Flags were lowered to half-staff on the landmark Harbour Bridge as Australians awakened to the surreal conclusion of the crisis. The state’s premier expressed disbelief that the attack could happen in Australia — a place he dubbed "a peaceful, harmonious society which is the envy of the world."

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

Hundreds of police flooded the city. 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 famous Sydney Opera House also is nearby.

Throughout the day, several hostages 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, which translates as, "There is no god but God and Muhammad is his messenger," is considered the first of Islam’s five pillars of faith. 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 media that might be contacted by the gunman to urge him instead to talk to police.

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 against the country’s tiny Muslim minority of some 500,000 people in a nation of 24 million. The hashtag #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.

The gunman could be seen pacing back and forth past the cafe’s windows. Reporter Chris Reason said the man carried what appeared to be a pump-action shotgun, was unshaven and wore a white shirt and a black cap.

Some of the hostages were forced up against the windows.

"The gunman seems to be sort of rotating these people through these positions on the windows with their hands and faces up against the glass," Reason said in a report. "One woman we’ve counted was there for at least two hours — an extraordinary, agonizing time for her, surely, having to stand on her feet for that long."

"When we saw that rush of escapees, we could see from up here in this vantage point the gunman got extremely agitated as he realized those five had got out. He started screaming orders at the people, the hostages who remain behind," he added.

As night set in, the lights inside the cafe were switched off. Armed police guarding the area outside fitted their helmets with green-glowing night goggles.

Lindt issued a statement saying it was "profoundly saddened and deeply affected about the death of innocent people."

"Our thoughts and feelings are with the victims and their families who have been through an incredible ordeal, and we want to pay tribute to their courage and bravery," said the statement from the Swiss company Lindt & Sprugli.

Australia’s government raised the country’s terror warning level in September in response to the domestic threat posed by supporters of the Islamic State group, also known as ISIL. Counterterror law enforcement teams later conducted dozens of raids and made several arrests in Australia’s three largest cities — Melbourne, Sydney and Brisbane. One man arrested during a series of raids in Sydney was charged with conspiring with an Islamic State leader in Syria to behead a random person in Sydney.

The Islamic State group, which holds a third of Syria and Iraq, has threatened Australia in the past. In September, its spokesman Abu Mohammed al-Adnani issued a message urging attacks abroad, specifically mentioning Australia.

One terrorism expert said the situation appeared to be that of a "lone wolf" making his own demands, rather than an attack orchestrated by a foreign jihadist group.

"There haven’t been statements from overseas linking this to extremist groups outside the country — that is quite positive," said Charles Knight, lecturer in the Department of Policing, Intelligence and Counter Terrorism at Australia’s Macquarie University.

Associated Press writers Nick Perry in Sydney, Rod McGuirk in Canberra, Jocelyn Gecker in Bangkok, Shawn Pogatchnik in Dublin and Maamoun Youssef in Cairo contributed to this report.