A suspected gunman at the centre of a 13-hour stand-off with armed police outside in a house in Toulouse says he will surrender late Wednesday evening.
Mohammed Merah is suspected of killing seven people in a series of linked shootings over the past 10 days in the south-west region of France.
French BFM TV had earlier reported his arrest had taken place, but that was denied by Interior Minister Claude Gueant.
"The negotiations continue. They are still under way," Gueant said.
About about 300 police, some wearing body armour, surrounded the four-storey building at around 3am on Wednesday.
Two police officers were injured in the raid after shots were fired. One was shot in the knee, said officials, and another was "lightly injured".
Speaking to French media, a former member of the police Raid unit said the initial operation had been bungled.
Gueant said that the man had earlier thrown one weapon out of a window in exchange for a phone, but still had several arms including an Uzi and a Kalashnikov rifle.
For more than two hours the suspect cut off contact with police, despite swapping one of his weapons for a mobile phone.
Contact only resumed at about 1.30pm French time.
The 24-year-old suspect, named by police as French national Mohammed Merah, who is of Algerian extraction, is said to be acting 'in revenge for Palestinian children' and has claimed to belong to a fringe group related to al-Qaeda.
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Merah was reportedly known to the authorities as a member of a fringe al-Qaeda group. Reuters quoted the director of prisons in Khandahar, Afghanistan, who said he was arrested in Afghanistan in 2007 but escaped en masse with other Taliban prisoners in 2008.
It was also reported that Merah had previously attempted to join the French military but was turned down because of his alleged criminal record.
Paris presecutor François Molins said that Merah was obsessed with watching graphic videos of beheadings and torture online, and said while he had trained at terrorist camps he did not have the "soul of a martyr" and was not prepared to die for his beliefs.
French commentator, Pierre Haski told the BBC's Newshour programme that "the mystery here is that he was found to have quite a good arsenal of weapons, war weapons, and given that he was under surveillance it's not clear how this could have escaped the attention of the authorities."
Police have arrested the man's two brothers and sisters at a separate location and also brought his mother to the scene to help the negotiation, without apparent success.
President Nicolas Sarkozy said: "In the name of the nation I would like to congratulate the police for the speed of their inquiry and their exceptional mobilisation of forces," he said.
"I am also thinking deeply about the victims of this barbaric act and also thinking about all those police officers that were wounded last night during the operation."
The siege continued even as the funeral for the victims of Monday's shooting took place in Israel.
The raid comes after the biggest manhunt in French history was launched following Monday's shooting at a Jewish school in which four people including three children were shot dead.
The victims were a rabbi, as well as his two sons and a girl whom is reportedly the school principal's daughter.
For the first time in the country's history, the south-western area of France was put on a "scarlet" terrorism alert by French president Nicolas Sarkozy, who has vowed to find the killer.
The tragic deaths have been linked to the deaths of two French paratroopers shot in the nearby town of Montauban on Friday and another in Toulouse on 11 March.