French police special forces were on trying to negotiate the surrender of a self-declared Islamist militant holed up in a flat after a series of deadly shootings.
Officials said Mohammed Merah, a 24-year-old French citizen of Algerian origin who has visited Afghanistan and Pakistan, bragged of being an al Qaeda member and claimed to have acted to avenge the deaths of Palestinian children.
Gunfire erupted as members of the RAID police special forces team tried to storm an apartment in a residential district of Toulouse in a pre-dawn raid, and two officers were wounded, Interior Minister Claude Gueant said.
The operation was launched after three attacks in which a scooter-riding killer gunned down seven people, including three Jewish children and three off-duty soldiers, in broad daylight in the Toulouse region.
Gueant said the suspect was thought to be armed with a Kalashnikov assault rifle, a Mini-Uzi 9mm machine pistol and other handguns, but had thrown a .45 pistol used in seven murders in the previous nine days from a window.
"He is currently in a dialogue with a police official and he says -- I do not know if he is telling the truth -- that he will hand himself in later in the day," the minister said, in an interview with the BFM-TV news network.
"The presumed guilty party asked for a means to communicate with police. In exchange for this means of communication, he threw a Colt .45 from the window. He has certainly thrown one weapon out, but he has others," he said.
Gueant said the suspect had spoken to officers through the door of his apartment, and declared himself to be a "mujaheedeen" or Islamic warrior, fighting to avenge Palestinian children killed in the conflict with Israel.
"This person has made trips to Afghanistan and Pakistan in the past... and says he belongs to Al-Qaeda and says he wanted to avenge Palestinian children and to attack the French army," Gueant had told reporters at the scene.
"He has links with people involved in Jihadism and Salafism," he added, referring to two strains of Muslim thought that have influenced Al-Qaeda.
The suspect had previously been arrested on a matter of common law in the southern Afghan city of Kandahar, cradle of the Taliban, a police source said.
The police raid came on the day that the Jewish victims of the attacks were being buried in Jerusalem.
Neighbours leaving the cordoned area said the suspect was on the first storey of the building in the leafy residential area. They said the first shots had rung out around 3:00 a.m. (0200 GMT).
Paris Grand Mosque Recter Dalil Boubakeur urged France not to stigmatise its Muslims in the wake of the shootings, saying "99.9 percent" of French Muslims were law-abiding citizens and the killings were the work of a tiny "fringe".
If the suspect is proved responsible for the killings, it would bring to an end one of the most intense manhunts in French history and help calm tensions after the series of attacks disrupted a presidential election.
The shootings began on March 11, when a paratrooper of North African origin arranged to meet a man in Toulouse to sell him a scooter which he had advertised online, revealing in the ad his military status.
A message sent from the suspect's brother's IP address was used to set up an appointment to inspect the bike, an appointment at which paratrooper Imad Ibn Ziaten was subsequently killed, a police source said.
Ibn Ziaten, a 30-year-old staff sergeant in the 1st Airborne Transportation Regiment, was shot in the head at close range with a .45 calibre pistol, a method that was to become the suspect's signature.
Four days later three more paratroopers from another regiment were gunned down, two of them fatally, in the same fashion in a street in the nearby garrison town of Montauban.
The dead -- Corporal Abel Chennouf, 25, and Private First Class Mohammed Legouade, 23, both of the 17th Parachute Engineering Regiment -- were French soldiers of North African Arab origin.
Arab soldiers are prized targets for groups like Al-Qaeda, which regards Muslims who fight for Western armies as traitors.
Then on Monday the shooter, again wearing a motorcycle helmet and riding a scooter, attacked the Ozar Hatorah Jewish school in Toulouse, killing a religious studies teacher, his toddler sons and a seven-year-old girl.
On Wednesday, the bodies of the four Jewish victims arrived in Israel.
Rabbi Jonathan Sandler, his sons Arieh, 5, and Gabriel, 4, and seven-year-old Miriam Monsonego arrived at Ben Gurion international airport near Tel Aviv shortly before dawn. They were to be buried later in the day.
President Nicolas Sarkozy and his Socialist rival for the presidency Francois Hollande were due to attend a memorial ceremony for the slain soldiers in Montauban later Wednesday.
Ibn Ziaten was to be buried in Morocco, while his dead comrades were due for burial in France on Wednesday and Thursday.
Both Sarkozy and Hollande temporarily suspended their campaigns following Monday's attack, with France was traumatised by an unprecedented series of hate crimes.