Hundreds of heavily armed police, some in body armor, cordoned off the five-story building in Toulouse where the 24-year-old suspect, Mohamed Merah, had been holed up since the pre-dawn hours.
As midnight approached, three explosions were heard and orange flashes lit up the night sky near the building. An Interior Ministry official said the suspect had gone back on a previous decision to turn himself in - and that police blew up the shutters outside the apartment window to pressure him to surrender.
The Toulouse prosecutor, Michel Valet, told The Associated Press: "I cannot confirm that the assault has started. It's not as simple as that. We are waiting."
Authorities said the shooter, a French citizen of Algerian descent, had been to Afghanistan and Pakistan, where he claimed to have received training from al-Qaida.
They said he told negotiators he killed a rabbi and three young children at a Jewish school on Monday and three French paratroopers last week to avenge the deaths of Palestinian children and to protest the French army's involvement in Afghanistan, as well as a government ban last year on face-covering Islamic veils.
"He has no regrets, except not having more time to kill more people and he boasts that he has brought France to its knees," Paris Prosecutor Francois Molins told a news conference.
The standoff began when a police attempt at around 3 a.m. to detain Merah erupted into a firefight. Two police were wounded, triggering on-and-off negotiations with the suspect that lasted into the night.
As darkness fell, police cut electricity and gas to the building, then quietly closed in to wait out the suspect.
Authorities were "counting on his great fatigue and weakening," said Didier Martinez of the SGP police union, adding the siege could go on for hours. Street lights were also cut, making Merah more visible to officers with night vision goggles in case of an assault.
French authorities - like others in Europe - have long been concerned about "lone-wolf" attacks by young, Internet-savvy militants who self-radicalize online since they are harder to find and track. Still, it was the first time a radical Islamic motive has been ascribed to killings in France in years.
Merah espoused a radical brand of Islam and had been to the Afghanistan-Pakistan region twice and to the Pakistani militant stronghold of Waziristan for training, Molins said.
He said the suspect had plans to kill another soldier, prompting the police raid.
The gunman's brother and mother were detained early in the day. Molins said the 29-year-old brother, Abdelkader, had been implicated in a 2007 network that sent militant fighters to Iraq, but was never charged.
Wednesday's siege was part of France's biggest manhunt since a wave of terrorist attacks in the 1990s by Algerian extremists. The chase began after France's worst-ever school shooting Monday and two previous attacks on paratroopers beginning March 11, killings that have horrified the country and frozen campaigning for the French presidential election next month.
French President Nicolas Sarkozy, who has played up nationalist themes in his bid for a second term, vowed to defend France.
"Terrorism will not be able to fracture our national community," Sarkozy declared Wednesday on national television before heading to funeral services for the two paratroopers killed and another injured Thursday in Montauban, near Toulouse.
The suspect repeatedly promised to turn himself in, then halted negotiations. Cedric Delage, regional secretary for a police union, said police were prepared to storm the building if he did not surrender.
After bouts of deadly terrorist attacks in France in the 1980s and 1990s, France beefed up its legal arsenal - now seen as one of the most effective in Western Europe and a reference for countries including the U.S. after the Sept. 11 attacks.
Sarkozy's office said President Barack Obama called him Wednesday to express condolences to the families of the victims and praise French police for tracking down the suspect. The statement said France and the United States are "more determined than ever to fight terrorist barbarity together."
In recent years, French counterterrorism officials have focused mainly on al-Qaida in the Islamic Maghreb, the North African affiliate of Osama bin Laden's network that has its roots in an insurgent group in Algeria, a former French colony.
Molins said Merah's first trip to Afghanistan ended with him being picked up by Afghan police "who turned him over to the American army who put him on the first plane to France."
"He had foreseen other killings, notably he foresaw another attack this morning, targeting a soldier," Molins said, adding also planned to attack two police officers. "He claims to have always acted alone."
Merah has a long record as a juvenile delinquent with 15 convictions, Molins added.
An Interior Ministry official, speaking on condition of anonymity, said Merah had been under surveillance for years for having "fundamentalist" Islamic views.
During the standoff, police evacuated the five-story building, escorting residents out using the roof and fire truck ladders. The suspect's apartment was on the ground floor of the postwar building, locals said.
French authorities said Merah threw a Colt .45 handgun used in each of the three attacks out a window in exchange for a device to talk to authorities, but had more weapons like an AK-47 assault rifle. Gueant said other weapons had been found in his car.
"The main concern is to arrest him, and to arrest him in conditions by which we can present him to judicial officials," Gueant added, explaining authorities want to "take him alive ... It is imperative for us."
Delage said a key to tracking Merah was the powerful Yamaha motorcycle he reportedly used in all three attacks - a dark gray one that had been stolen March 6. The frame was painted white, the color witnesses saw in the school attack.
According to Delage, one of his brothers went to a motorcycle sales outfit to ask how to modify the GPS tracker, raising suspicions. The vendor then contacted police, Delage said.
The shooter has proved to be a meticulous operator. At the site of the second paratrooper killing, police found the clip for the gun used in all three attacks - but no fingerprints or DNA on it.
Those slain at the Jewish school, all of French-Israeli nationality, were buried in Israel on Wednesday as relatives sobbed inconsolably. The bodies of Rabbi Jonathan Sandler, his sons Arieh, 5, and Gabriel, 3, and 8-year-old Myriam Monsenego had been flown there earlier in the day.
At the funeral ceremony, Myriam's eldest brother, Avishai, in his 20s, wailed and called to God to give his parents the strength "to endure the worst trial that can be endured."
Palestinian Prime Minister Salam Fayyad, meanwhile, denounced the deadly shooting attack at the Jewish school and condemned the link to Palestinian children.
"It's time for criminals to stop using the Palestinian cause to justify their terrorist actions," Fayyad said in a statement. "The children of Palestine want nothing but dignified lives for themselves and for all the children."
Before he was killed last year, bin Laden stressed the importance of focusing on the Palestinian cause. In what is believed to be a draft letter to al-Qaida's top lieutenant, the al-Qaida leader wrote about the need for the terror group's affiliates to tie their operations to broad concern for Palestine instead of local grievances, according to declassified documents obtained in last year's bin Laden raid that were reviewed by the Washington Post.
Elaine Ganley, Thomas Adamson, Jamey Keaten, Ingrid Rousseau, Cecile Brisson and Sylvie Corbet in Paris, David Rising in Berlin, Daniella Cheslow in Jerusalem and Eileen Sullivan in Washington contributed to this report.