Television images showed hostages pressed up against a window at the Lindt cafe in Martin Place with their arms raised and holding a black flag with white Arabic lettering. State police said they were trying to make contact with those inside and warned people in the vicinity to stay indoors and away from open windows.

“We don’t yet know the motivation of the perpetrator,” Abbott, who convened Cabinet’s National Security Committee for briefings on the siege, told reporters in Canberra. “We don’t know whether this is politically motivated although obviously there are some indications that it could be.”

Australia raised its terrorism alert to the highest level in a decade in September, citing the threat posed by supporters of Islamic State, and days later police carried out their largest anti-terrorism raid, foiling an alleged beheading plot. The Australian dollar fell on news of the hostage taking, which prompted banks in the vicinity to evacuate some personnel.

Clive Williams, a former military intelligence officer, said the flag appeared to be a “Shahada,” which is used by some Islamic State followers though isn’t the group’s official insignia.

The “low-tech, high-impact operation is consistent with what Islamic State has been urging its supporters to do,” Williams, a visiting professor at the Australian National University’s College of Law, said in a phone interview.

The U.S. consulate in the MLC Center on Martin Place was evacuated. KPMG International has locked down its downtown office on Shelley Street and told employees in other buildings in the city not to move, according to an internal memo seen by Bloomberg News.

Macquarie Group said it’s relocating certain staff from its Martin Place building to other premises in Sydney and other employees will work from home. Tiffany & Co., Rolex and Jimmy Choo were among shops nearby that locked their doors.

ASX Ltd., the operator of the Australian Stock Exchange, said it is operating normally.

Qantas Airways Ltd. flights were being diverted around the central business district, but still operating on schedule, the airline said on Twitter today. Shares in the country’s largest carrier fell as much as 7.5 percent and were down 5.8 percent at A$2.26 at 1:15 p.m. Sydney time.