By Peter Allen and Julian Robinson
Francois Hollande says France is at war with ISIS after Islamist knifemen chanting 'Allahu Akbar' beheaded a French priest and left a nun fighting for her life - before police shot them both dead.
The 86-year-old priest was butchered while two nuns and two parishioners were held by assailants who raided the church in Saint-Etienne-du-Rouvray near Rouen in Normandy during morning mass at 9 am.
The clergyman, named as Jacques Hamel, is believed to have been beheaded during the attack while another hostage, said to be a nun, is fighting for life in hospital.
The two attackers were 'neutralised' by marksmen as they emerged from the building, which is now being searched for explosives. French president Francois Hollande said France is 'at war' with ISIS while the terror group has claimed responsibility for the killing.
There were reports the attackers shouted 'Allahu Akbar' as they ran out of the church while at least one of the men was dressed in Islamic clothing.
It comes as it emerged that the building was one of a number of Catholic churches on a terrorist 'hit list' found on a suspected ISIS extremist last April.
There are also reports that one of the attackers was a local resident who was under electronic tag surveillance having been jailed in France for trying to travel to Syria in 2015. His bail terms allowed him to be unsupervised between 8.30am and 12.30pm - the attack happened between 9am and 11.am.
ISIS has already claimed responsibility for the attack in a statement published by its Aamaq news agency. It said the killing was carried out by 'two soldiers of the Islamic State.' It added the killing was in response to its calls to target countries of the US-led coalition which is fighting ISIS.
French President Francois Hollande, visiting the scene of the attack, appealed for 'unity' in France, where political blame-trading has poisoned the aftermath of the Nice truck attack, the third major strike in the country in 18 months.
'The threat remains very high,' said Hollande. 'We are confronted with a group, Daesh, which has declared war on us. We have to wage war by every means, (but through) upholding the law, which is because we are a democracy.'
Pope Francis has expressed his 'pain and horror' at the incident with a spokesman saying the Pontiff was appalled by the 'barbaric killing' because it happened in a sacred place.
The Archbishop of Canterbury Justin Welby said: 'Evil attacks the weakest, denies truth and love, is defeated through Jesus Christ. Pray for France, for victims, for their communities.'
The two men held the priest and congregation of four - which included two nuns - hostage for almost an hour before being shot as they emerged on to the courtyard of the church.
A spokesman for the Interior Ministry in Paris had earlier said that they had crept into the church via a back entrance during a morning service, soon after 9am. The two men seized the priest, two sisters from a local order, and two parishioners.
'A third nun escaped and raised the alarm, and anti-terrorists officers were on the scene within minutes,' said a source who lives locally. 'It appears that the priest who was celebrating the service was attacked first, and had his throat cut.
'The area around the church was sealed off, and then armed officers appeared with their weapons. I heard at least a dozen shots.'
The siege officially ended at around 11am, following the shooting of the two attackers.
This morning, security sources said one of the murderers was a convicted terrorist who was meant to be living with his parents with an electronic tag on his ankle.
The revelation - made to the French TV news channel I-Tele - will cause further outrage in a country devastated by constant security failings.
Two identities of the attackers are already known to the authorities. One, who lived close to the church, is said to have left for Syria in 2015 to try and join ISIS, but he was arrested in Turkey.
He was jailed for terrorist offences following a short trial in France, before being released on March 2 this year. Bail conditions included returning to live with his parents, wearing an electronic tag, and reporting to his local police station. Neither of the Saint-Etienne-du-Rouvray attackers have yet been named.
French security services have been regularly criticised for the way they allow known terrorists their freedom after being found guilty of crimes.
Killing is latest in spate of bloody attacks across Europe
Today's attack is the latest to hit Europe in what has been a year of bloodshed on the continent:
July 24: Festival suicide bombing - A failed Syrian asylum seeker set off an explosive device near an open-air music festival in the southern city of Ansbach that killed himself and wounded a dozen others.
The 27-year-old had spent time in a psychiatric facility, while the regional authorities said an there was 'likely' a jihadist motive for the attack.
However a spokesman for the interior ministry later said there was as yet 'no credible evidence' of a link to Islamic extremism.
July 24: Knife attack - A Syrian refugee was arrested after killing a Polish woman with a large kebab knife at a snack bar in the southwestern city of Reutlingen, in an incident police said did not bear the hallmarks of a 'terrorist attack' and was more likely a crime of passion.
Three people were also injured in the assault, which ended when the 21-year-old assailant was deliberately struck by a BMW driver, believed to be the snack bar owner's son, trying to stop the man.
July 22: Munich mall mass shooting - David Ali Sonboly, 18, shot dead nine people at a Munich shopping mall before turning the gun on himself, having spent a year planning the rampage.
Police said that the German-Iranian was 'obsessed' with mass killers like Norwegian right-wing fanatic Anders Behring Breivik and had no links to the Islamic State group.
July 18: Train axe attack - A 17-year-old migrant wielding an axe and a knife went on a rampage on a regional train, seriously injuring four members of a tourist family from Hong Kong and a German passer-by.
ISIS group subsequently released a video purportedly featuring the assailant, named by media as Riaz Khan Ahmadzai, announcing he would carry out an 'operation' in Germany, and presenting himself as a 'soldier of the caliphate'.
He is believed to have been Afghan or Pakistani.
July 14: Tunisian Mohamed Lahouaiej Bouhlel ploughed a truck into a crowd of people celebrating Bastille Day in the French Riviera city of Nice, killing 84 people and injuring over 300.
The Nice attack was the third major strike on France in 18 months and was claimed by ISIS.
March 22: Suicide attacks claimed by ISIS kill 32 people and wound more than 300 at the Brussels airport and Maelbeek metro station, near European Union offices. They appear to have been carried out by members of the same cell that committed attacks in Paris four months earlier.
November 13, 2015: Coordinated suicide attacks in Paris kill 130 people and wound more than 350 at the Bataclan concert hall, cafes and the national stadium. ISIS claims responsibility for the attacks.
Units attending the scene this morning included the elite RAID, the anti-terrorist unit that was heavily involved in the Paris attacks last year, in which almost 150 people were murdered.
Interior Ministry spokesman Pierre-Henry Brandet said police were searching the church and its perimeter for possible explosives and terrorism investigators had been summoned.
Anti-terrorist judges immediately opened an investigation in to today's attack, as President Francois Hollande and Interior Minister Bernard Cazeneuve attended the scene.
French Prime Minister Manuel Valls tweeted that he was 'horrified at the barbaric attack' adding: 'All France and all Catholics are bruised.'
And at a press conference in Downing Street, Prime Minister Theresa May offered 'my condolences to the French people following the sickening attack in Northern France this morning", adding: "Our thoughts and prayers are with all those affected.'
A number of shots were heard over a period of around 15 seconds as the incident came to an end.
Eulalie Garcia, who works in a beauty parlour, is on the same road as the church, and told reporters that she knew the priest, who had taught her the catechism as a young girl.
'My family has lived here for 35 years and we have always known him,' she said. 'He was someone who was treasured by the community. He was very discreet and didn't like to draw attention to himself.'
She said she was very shocked by the death of the priest, who lived opposite his church. 'It can happen to anyone,' she said.
Archbishop Dominique Lebrun of Rouen later confirmed that Father Jacques Hamel had been killed.
In a statement from Krakow, Poland, where Pope Francis was visiting, Lebrun says 'I cry out to God, with all men of good will. And I invite all non-believers to unite with this cry ... The Catholic Church has no other arms besides prayer and fraternity between men.'
The area around the church remained cordoned off and the old town was out of bounds.
The French Police Nationale gave no details about the situation but sent a Tweet urging media not to cross security tape at the scene or take pictures or video.
Saint-Etienne du Rouvray has a population of 30,000 and is around seven miles from Rouen.
A local Muslim leader said one of the men who attacked the church was on French police radar and had travelled to Turkey.
Mohammed Karabila, president of the Regional Council of the Muslim Faith for Haute-Normandie and head of the local Muslim cultural centre, said 'the person that did this odious act is known, and he has been followed by the police for at least a year and a half.'
He said the attacker 'went to Turkey and security services were alerted after this.' He had no information about the second attacker.
Mr Karabila said he hoped that interfaith dialogue in his region would not be damaged.
The incident comes as France is on high alert after a Bastille Day attack that killed 84 people in Nice and a series of deadly attacks last year claimed by ISIS.
This morning it emerged Saint-Etienne-du-Rouvray was one of a number of Catholic churches on a terrorist 'hit list' found on a suspected ISIS terrorist.
Sid Ahmed Ghlam, 24, was arrested in April 2015 after he called an ambulance in Paris after shooting himself in the leg.
Investigators believe he was a terrorist planning 'imminent attacks' in France on the instructions of ISIS leaders.
Investigators found an arsenal of weapons in Ghlam's car, which was parked nearby, and at his student accommodation. It included Kalashnikovs, a police-issue pistol, and a number of bullet-proof vests.
Documents found at his flat and in a search of his computer and telephone, suggested Ghlam was in contact with a French speaker in Syria whohad ordered him to carry out attacks on churches.
These included the Sacre-Couer basilica in Paris, and places of worship including the one in Saint-Etienne-du-Rouvray targeted today.
Ghlam is currently in a high-security prison while waiting trialfor 'murder, attempted murder, association with criminals with a view to commitcrimes against people' and for other infractions 'connected to a terroristorganisation'.
The computer student, who born in Algeria, was also charged with the murder of a 32-year-old woman, who was found in the passenger seat of her burning car after his arrest.
Dance instructor Aurelie Chatelain, a mother of one, who had just attended a Pilates class, died after she was shot three times in the head, in what police believe may have been an attempt by Ghlam to hijack her car.
As part of beefed up security operations in France, some 700 schools and Jewish synagogues and 1,000 mosques are under military protection.
However with some 45,000 Catholic churches, and thousands more Protestant and evangelical churches, protecting all places of worship is a massive headache for security services.
The Nice massacre triggered a bitter political spat over alleged security failings, with the government accused of not doing enough to protect the population.
French far-right National Front leader Marine Le Pen wrote on Twitter that the 'modus operandi obviously makes us fear a new attack from terrorist Islamists.'