Lawyer and mother Katrina Dawson and cafe manager Tori Johnson died when police stormed the Lindt Cafe after gunshots were heard inside.

The hostage taker, Man Haron Monis, a self-styled cleric well known to police and widely derided in the Muslim community as a crackpot,  was also killed.

Stunned and silent, as flags flew at half mast across the city, Sydneysiders began gathering in Martin Place early to grieve.

By lunchtime, the granite heart of the city was carpeted with flowers, laid by mourners who were struggling to understand how this violence could so utterly challenge their sense of safety and the joy of living, for the most part, in a harmonious society.

Sydney mother Terri Lucia knew Mr Johnson, who was killed during the siege, and came early to leave flowers in his memory.

"We knew he was in there all day and I just found out this morning that he was dead," she said.

"It's just horrible. I just feel that we've lost something, something that I felt we were protected from. That's what's making it so upsetting. I do feel we lost some of our innocence yesterday."

Police were forced to clear a bigger area as the flowers kept arriving. Tears streamed from the faces of those watching and waiting to sign condolence books on black shrouded tables around the makeshift shrine.

"Often, when there is despair, there is also hope and a positive spirit that we are seeing," Premier Mike Baird said.

"This city is amazing, our people are incredible and what we are seeing in Martin Place right now. It's the beating heart of the city being put in place," he said.

The outpouring of grief was matched by a determination of Sydneysiders to prevent the multicultural fabric of Sydney from fraying, as religious leaders from all faiths came Sydney's grand plaza to offer condolences.

People volunteered to sit with Muslims on public transport, to show solidarity and prevent any reprisal attacks or abuse, following a massive social media campaign under the hashtag #illridewithyou.

Cathy Butera drove about an hour from her home in Austral to leave two bunches of flowers, one for each victim.

"One act of evil from one person has now created a chain reaction with thousands of acts of kindness from people all over the world," she said.

Cafe swarmed

The siege at Martin Place ended after more than 16 hours of excruciating tension, soon after 2am, when police swarmed the cafe following the firing of a gun inside.

The gunfire happened shortly after seven of the 17 hostages captured by Monis escaped after their tiring and lone captor turned his back on them.

There were unconfirmed reports that slain cafe manager Tori Johnson had attempted to wrest the shotgun from off Monis as he was falling asleep.

"Police made the call because they believed that at that time that, if they didn't enter, there would have been many more lives lost," said NSW Police commissioner Andrew Scipione.

Mr Johnson, of Redfern was the son of acclaimed Australian artist Ken Johnson and his former wife Rowena, and leaves behind a long-term partner Thomas Zinn.

Friends of Mr Johnson described him on Tuesday as "a loving, placid and very gentle soul ... a true gentleman".

Katrina Dawson, a rising star at the commercial bar, was also pronounced dead after being taken to hospital. There are reports Ms Dawson died protecting her pregnant friend, a fellow barrister from Eighth Floor Selbourne Chambers, Julie Taylor, who was taken from the scene on a stretcher.

Ms Dawson leaves behind three children between the ages of four and 10, and a husband, Paul Smith, a partner at King & Wood Malleson.

A highly respected barrister from Eighth Floor Selborne Chambers in Phillip Street, Ms Dawson was the younger sister of prominent defamation barrister Sandy Dawson and McKinsey & Company director Angus Dawson.

The devastating news has left the Sydney legal fraternity in shock.

Several other hostages were injured or required medical attention, but all are now in a stable condition.  A 75-year-old woman received a gunshot wound to the shoulder, a 52 year-old woman was shot in the foot and a 43-year-old woman was wounded in the leg. Ms Taylor and another pregnant woman were admitted to hospital for assessment. A police officer received minor facial injuries from shotgun pellets and was discharged.

On bail facing serious charges

Amid the deep sense of loss, there will also be some soul searching about why the gunman, Monis slipped through the cracks of the judicial system and was released on bail, despite the fact he was facing several serious charges, including accessory to  the murder of his ex-wife Noleen Pal,  who was found stabbed 18 times and was set alight in a stairwell in Wetherill Park.

The home of Monis' partner Amirah Droudis, who is on bail charged with the murder of Ms Pal,  was raided by police on Tuesday.

Monis also faced more than 40 sexual assault charges stemming from his time as a "faith healer" in Wentworthville between 2000 and 2002.

By last week, Monis' life was unravelling. On Friday he was unsuccessful in overturning a conviction for using the postal service to menace the families of deceased Australian Defence Force personnel.

He was also due back in court on the accessory to murder charge and the sexual assault charges.

Monis was well known to counter-terrorism authorities but not on any terrorist watchlist. This month he announced he had converted from Shia Islam to the Sunni variant. Islamic State, the terrorist group Monis proclaimed allegiance to during the siege, regards the Shia as a vile aberration and have murdered thousands of adherents.

Monis' release from prison on bail and the failure of intelligence agencies to pick up his conversion to a brutal and perverted brand of Sunni Islam propagated by IS will be the subject of an internal review.

Prime Minister Tony Abbott said Australians should be reassured by the way law enforcement  and security agencies responded to "this brush with terrorism".

"There is nothing more Australian than dropping in at the local cafe for a morning coffee and it's tragic beyond words that people going about their everyday business should have been caught up in such a horrific incident.

"Our hearts go out to all of those caught up in this appalling incident and their loved ones."

With staff reporters