French CRS police block a street during a raid on a house to arrest a suspect in the killings of three children and a rabbi on Monday at a Jewish school, in Toulouse March 21, 2012. [Photo\Agencies]

TOULOUSE, France - French police in the southwestern city of Toulouse tightened their siege of a gunman suspected of shooting dead seven people, including three Jewish children, in a killing spree in the name of al Qaeda.

In an unfolding drama that has riveted France and the world, about 300 police, some in body armor, cordoned off a four-storey building in a suburb of Toulouse where the 24-year-old Muslim shooter, identified as Mohamed Merah, is holed up.

French Interior Minister Claude Gueant denied media reports that Merah had been arrested. President Nicolas Sarkozy was expected to speak to reporters in Toulouse shortly.

Gueant said the gunman was a French citizen of Algerian origin who had been to Pakistan and Afghanistan and had told police negotiators he had carried out his attacks to avenge the deaths of Palestinian children and because of the French army's involvement in Afghanistan.

Authorities in Afghanistan confirmed that Merah had been arrested for bomb making in the lawless southern province of Kandahar in 2007 but escaped months later in a massive Taliban prison break.

Police removed other residents from the building and began evacuating other nearby homes. A police source said that authorities would not allow the siege to drag on indefinitely.

Sarkozy, running for re-election in five weeks time, said earlier that France should not give way to discrimination or vengeance after the shootings of a rabbi and the three children, and three soldiers of North African origin.

His warning came after far-right leader Marine Le Pen, a rival presidential candidate, said France should wage war on Islamic fundamentalism.

"Terrorism will not manage to break our nation's feeling of community," Sarkozy said after meeting Jewish and Muslim community leaders in the Elysee palace in Paris. "We must stand together. We must not cede to discrimination or vengeance."

Interior Minister Gueant said Merah, who had been under surveillance since the attack on the first soldiers last week, wanted revenge "for Palestinian children and he also wanted to attack the French army because of its foreign intervention".

He told journalists Merah was a member of an ideological Islamic group in France but this organization was not involved in plotting any violence.

He said Merah had thrown a Colt 45 pistol of the kind used in all the shootings out of a window of the block of flats in exchange for a mobile phone, but was still armed.

Police sources said they had conducted a controlled explosion of the suspect's car at around 9:00 a.m. after discovering it was loaded with weapons.

Merah's girlfriend and brother, also known to authorities as a radical Islamist, have also been arrested, officials said.