PARIS (AFP, REUTERS) - Shots were fired during a car chase and at least one hostage was taken to the north-east of Paris Friday, in the same area police were hunting for two brothers accused of slaughtering 12 people in an Islamist assault.
The Paris prosecutor denied media reports that at least one person was killed.
The hostage drama was underway at a business in Dammartin-en-Goele, to the north-east of Paris, and came 48 hours into a massive manhunt for the Islamist gunmen who attacked the Charlie Hebdo offices on Wednesday.
The attack was linked to another shoot-out in which a Paris policewoman was killed on Thursday in the area of Montrouge, police said. French media, including Le Point, said that the Montrouge gunman and the brothers were known to each other and were part of the same Jihadist network, The Guardian reported.
France is at "war" with terrorism, but not religion, Prime Minister Manuel Valls said on Friday as police cornered two suspected Islamist gunmen near Paris.
"We are in a war against terrorism. We are not in a war against religion, against a civilisation," Valls said.
Police officers are said to have opened hostage negotiations with the suspects, The Guardian reported. The suspects were holed up in a small printing business named CTD, a source close to the investigation said.
"We have indications of the presence of the terrorists whom we want to stop," Interior Minister Bernard Cazeneuve told reporters in Paris after a police source said a hostage-taking was going on within an industrial unit in the town.
"An operation is underway right now in Dammartin-en-Goele, which is mobilizing all services in the zone," Cazeneuve said, adding that further operations would be conducted in "the upcoming hours, upcoming minutes."
The frantic search for the pair suspected of committing the worst atrocity on French soil in more than half a century came as it emerged they had been on a US terror watch list "for years".
And as fears spread in the wake of the attack, the head of Britain's domestic spy agency MI5 warned that Islamist militants were planning other "mass casualty attacks against the West" and that intelligence services may be powerless to stop them.
Wednesday's bloodbath at the satirical magazine Charlie Hebdo in Paris has sparked a global chorus of outrage, with impromptu and poignant rallies around the world in support of press freedom under the banner "jesuischarlie" (I am Charlie).
US President Barack Obama was the latest to sign a book of condolence in Washington with the message "Vive la France!" as thousands gathered in Paris on a day of national mourning Thursday, and the Eiffel Tower dimmed its lights to honour the dead.
And as a politically divided and crisis-hit France sought to pull together in the wake of the tragedy, the head of the country's Muslim community - the largest in Europe - urged imams to condemn terrorism at Friday prayers.
In a highly unusual step, President Francois Hollande was due to meet far-right leader Marine Le Pen at the Elysee Palace later Friday, as France geared up for a "Republican march" on Sunday expected to draw hundreds of thousands.
French authorities raised the security alert to the highest possible level in the region of Picardy, to the northeast of Paris, as forces tightened their noose on the brothers, Cherif Kouachi, 32 and Said, 34.
Around 24 hours into the manhunt, the brothers were identified after holding up a petrol station 80 kilometres (50 miles) from Paris. Helicopters buzzed overhead during the night and paramilitary forces were preparing to step up their house-to-house searches. As heavily armed crack units swarmed through the normally tranquil countryside villages, residents voiced their nervousness.
The brothers were both flagged in a US database as terror suspects, and also on the no-fly list, meaning they were barred from flying into the United States, the officials said.