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Hostages were being held inside a central Sydney cafe where a black flag with white Arabic writing could be seen in the window, local television showed on Monday (December 15), raising fears of an attack linked to Islamic militants.
Australia, which is backing the United States and its escalating action against Islamic State in Syria and Iraq, is on high alert for attacks by radicalized Muslims or by home-grown fighters returning from fighting in the Middle East.
Part of Martin Place, home to the Reserve Bank of Australia, commercial banks and close to the New South Wales (NSW) state parliament, was closed off by armed police.
Live television footage showed patrons inside a cafe standing with their hands pressed against the windows. A black and white flag similar to those used by Islamic State militants in Iraq and Syria was also visible.
NSW Police tweeted: "A police operation is underway in Martin Place, Sydney's central
