Four people were taken hostage at a bank in Toulouse, in the south of France, on Wednesday, according to local newspaper La Depeche reported.
A gunman claiming to be affiliated with Al Qaeda was wounded when police stormed the bank, according to Agence France Presse.
Two of the hostages, women, were initially freed about an hour and a half apart. The remaining two hostages, including the bank manager, were released when police stormed the bank at around 4:45 p.m. local time, according to AFP.
Three gunshots were heard during the assault.
The gunman was described as a man in his 20s or 30s, from France's Haute Garonne region, and was reportedly "very, very agitated," according to police spokesman Christophe Crepin, said CNN.
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The hostages were taken captive at around 10 a.m. this morning at a branch of French bank CIC in the east of Toulouse, BFM TV reported.
The hostage-taker reportedly demanded to speak to Raid, the elite French police squad that was responsible for Merah's death.
Non-Raid officers were on the scene, France Info reported. The surrounding area was cordoned off, nearby schools evacuated and traffic diverted.
Officers negotiated with the gunman for the remaining captives' release. According to La Depeche, he apparently released the first woman in exchange for food and water, and the second in the hope of being allowed to speak to the media.
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His motive was not yet clear. His claim to have links to Al Qaeda could be "a fantasy," one police source told local newspaper Ouest-France. Another said the attack could be an attempted armed robbery gone wrong.
Merah, who also claimed ties with Al Qaeda, shot dead seven people in three separate attacks in and around Toulouse, including one on a Jewish school.
In the wake of the murders, the then French president, Nicolas Sarkozy, announced a policy of "zero tolerance" for anyone promoting radical, violent Islamism.