Hostages held by 'Islamists' in Sydney cafe siege.

Two female hostages have managed to break free from the Lindt cafe in Martin Place, Sydney, where an Islamic extremist is holding dozens of hostages - bringing the number of escapees to five. Earlier, three men scrambled a few metres from a fire escape toward heavily armed tactical police, who kept their weapons pointed toward the café as they directed the men to get behind them to safety.

The men, one of whom wore a long black barista's apron looked clearly terrified as they fled. At least one suspect carrying a shotgun, a machete and possibly an explosive device entered the Lindt cafe in Sydney's Martin Place about 9.45am on Monday.

Staff and customers sobbed as they were forced to hold a black flag - believed to be that of an Islamic extremist group - up against the window. The text on the flag was partially translated as: 'There is no God but Allah.' TV reports showed a man wearing a black headband with white text on it moving inside the café. A Lindt staff member could be seen with her hands held against the window and her eyes closed.