Mostly foreigners among 20 dead in Dhaka

By Serajul Quadir and Ruma Paul
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Gunmen take hostages at cafe in Dhaka

Islamic State has claimed responsibility for an attack on a restaurant in Dhaka's diplomatic quarter

Islamist militants have killed 20 people, most of them foreigners, inside an upmarket restaurant in Bangladesh's capital, before security forces stormed the building and ended a 12-hour stand-off.

Islamic State said it was responsible for the brazen attack, but that claim has yet to be confirmed.

The gunmen, who stormed the busy restaurant in Dhaka's diplomatic area late on Friday night, ordered all Bangladeshis to stand up before they began killing foreigners, a source briefed on the police investigation says.

Among the dead was the wife of an Italian businessman killed by a machete.

She was found by her husband after he spent all night hiding behind a tree outside the cafe while the gunmen were inside, Agnese Barolo, a friend who lives in Dhaka and spoke to him, told Reuters.

Seven Italians were in the cafe when the attack started, including several working in the garment industry, Italian media have reported, while seven Japanese citizens were unaccounted for.

The killing of foreigners will likely shatter the confidence of the expatriate community in Bangladesh, many of whom work for multinationals in the country's $US26 billion ($A34.90 billion) garment sector that accounts for around 15 per cent of the economy. Bangladesh is the world's second-largest apparel exporter after China.

Thirteen hostages were rescued, including one Japanese and two Sri Lankans, the army said.

Army spokesman Colonel Rashidul Hasan said he could not yet confirm the nationalities of those who had died. Most of them had been killed by "sharp weapons".

Hasan said initially that it seemed all the victims were foreigners but now the army believes some locals were among the dead as well.

Six gunmen were killed during the police operation and one was captured, Prime Minister Sheikh Hasina said in a TV broadcast on Saturday. Two police were killed in the initial assault.

Gowher Rizvi, an adviser to Hasina, said security forces had tried to negotiate with the gunmen.

The hostage crisis began when security guards in the Gulshan district of Dhaka, popular with expatriates, noticed several gunmen outside a medical centre, Rizvi said.

When the guards approached, the gunmen ran into a building housing the restaurant, packed with people waiting for tables, he said.

Ali Arsalan, co-owner of the restaurant, said his staff told him the attackers yelled "Allahu Akbar" (God is Great) as they stormed the building, split between Holey Artisan Bakery and the O'Kitchen Restaurant.

Police said the assailants exchanged sporadic gunfire with police outside for several hours after the gunmen attacked the restaurant around 9pm on Friday.

A police officer at the scene said when security forces tried to enter the premises at the beginning of the siege, they were met with a hail of bullets and grenades that killed at least two of them.

A cafe employee who escaped told local television about 20 customers were in the restaurant at the time, most of them foreigners. About 15 to 20 staff were working at the restaurant, the employee said.

The rescued Japanese man was eating dinner with seven other Japanese, all of whom were consultants for Japan's foreign aid agency, a Japanese government spokesman said. The fate of the other seven remained unknown.

Japan's Prime Minister Shinzo Abe said the Japanese aid workers "were giving their all for the development of Bangladesh".

"We feel strong indignation at this inhumane, despicable act of terrorism, which has claimed many lives," he told reporters.