Gunmen stormed a crowded restaurant popular with foreigners in the Bangladeshi capital on Friday night, apparently taking diners hostage and sparking a firefight with police in which at least two officers were killed, police and witnesses said.
The attackers stormed into the Holey Artisan Bakery restaurant in Dhaka's upmarket diplomatic quarter shouting "Allahu Akbar" (God is the Greatest) and opened fire at around 9:20pm (1320 GMT).
The restaurant's supervisor Sumon Reza who escaped by jumping from the roof told a local newspaper there were 20 foreigners being held hostage and said the attackers had detonated explosives.
"I was in the roof. The whole building was shaking when they set off explosives," he said.
The US State Department said it appeared to be a hostage situation and the White House said US President Barack Obama was following the situation.
A senior Bangladeshi government official confirmed to AFP on condition of anonymity that there were several people inside the restaurant including one Italian national who worked there.
"Police immediately rushed to the place and fired back," district police officer Sayedur Rahman told AFP.
"An unknown number of people are still inside but we cannot confirm whether they are held hostage," he said.
The French Ambassador Sophie Aubert said the restaurant was "very popular" among diplomats and other foreigners in Dhaka.
"We're very concerned that there are some hostages inside," she told AFP, adding she was trying to confirm whether there were foreigners inside.
Heavily armed police and paramilitary guards cordoned off the area as the gunfight broke out.
"They were eight or nine people," one witness told reporters.
"They were shouting Allahu Akbar as they entered the restaurant."
It was not clear who was behind the attack, which took place near the Nordic Club, where expatriates of Nordic nations gather, and the Qatar embassy as Bangladesh observes the Muslim holy month of Ramadan.
It follows a series of killings targeting foreigners in Bangladesh that have been claimed by the Islamic State group.
Police said two of their officers had been killed and several more injured.
"We are trying to communicate with them (gunmen). We want to resolve it peacefully," the head of Bangladesh's elite security force Benazir Ahmed told reporters.
Bangladesh has been reeling from a wave of murders of religious minorities and secular activists by suspected Islamist militants.
Earlier Friday a Hindu temple worker was hacked to death in western Bangladesh.
Police also shot dead two Islamist students suspected in last month's murder of an Hindu priest and arrested a top Islamist militant who masterminded an attack on a Hindu lecturer last month.
The government and police blame homegrown militants for the killings, which they say are part of a plot to destabilise the country.
They have blamed the main opposition Bangladesh Nationalist Party (BNP) and its Islamist ally.
Last month authorities launched a nationwide crackdown on local jihadist groups, arresting more than 11,000 people, under pressure to act on the spate of killings.
But many rights groups allege the arrests were arbitrary or were a way to silence political opponents of the government.
Experts say a government crackdown on opponents, including a ban on the country's largest Islamist party following a protracted political crisis, has pushed many towards extremism.