Mohammed Merah, the man suspected of the Toulouse Jewish school massacre, was still holed up in his house in northern Toulouse early Wednesday afternoon after a pre-dawn gun battle. 

Interior Minister Claude Gueant denied French TV reports that the police had arrested Merah at 3 pm local time.

Merah had given up a pistol in exchange for a mobile phone, but still had powerful weapons, including an Uzi machine gun and a Kalashnikov assault rifle,  Gueant told French media.

Residents of the houses close to Merah’s have been evacuated. Weapons were found in a car nearby.

Cedric Delage, regional secretary for a police union, said the suspect has promised to turn himself into police by 2:30 p.m. (1330GMT). Delage says if that doesn’t happen, police will force their way in to try to take him by force.

French President Nicolas Sarkozy congratulated the police for their speedy investigation and reported on conversations with representatives of France’s Muslim and Jewish communities, in a public address Wednesday morning. Sarkozy said he told them “terrorism cannot break our community.”

“We should be united and not give in to vengeance. We owe this to the victims who have been killed in cold blood,” said the French president.

Prime Minister Benjamin Netanyahu thanked French Foreign Minister Alain Juppe for his country’s strong and clear response to the deadly shooting in Toulouse. The leaders met in Jerusalem after the funeral of the four victims. Netanyahu stressed the difference between terrorism that targets unarmed schoolchildren and teachers, and the accidental killing of children in the battle against terror. “If we don’t create that distinction – the terrorists will win,” Netanyahu said.

French media have linked the suspect to a group called Forsane Alizza (Knights of Pride) that was banned by Interior Minister Gueant last month.

During negotiations with police, Merah said he committed the attack out of a desire to avenge the deaths of Palestinian children by Israel.

Three police officers were reportedly injured in the siege, which began before dawn. One of them was shot in the knee.

Gueant said Merah’s two sisters and two brothers are now being held by police.

Officers brought Merah’s mother to the scene and tried to get her to help negotiate, but she refused, saying “she had little influence on him,” Gueant said.

The suspect is 24 years old and is of French nationality. He said “he belongs to al-Qaeda,” Gueant told reporters at the scene. He said the suspect “wants to take revenge for Palestinian children” killed in the Middle East, and is angry at the French military for its operations abroad.

Merah was known to authorities for having spent time in Afghanistan and Pakistan, Gueant said, adding that had been followed for “several years” by domestic intelligence.

French media sources said the suspect spent time training on the Afghanistan-Pakistan border, where he adopted extremist ideology.

According to Reuters news agency, the head of Kandahar prison in Afghanistan, says Merah escaped from the prison in a mass Taliban jailbreak.

Reuters report that the suspect had been serving a three-year sentence when he escaped from jail.

French authorities had declared a nationwide manhunt to find the killer of three children and one adult at the Jewish Ozar Hatorah school in Toulouse on Monday.

Rabbi Jonathan Sandler, 30, his two children Gavriel and Arieh, ages 5 and 4, and Miriam Monsonego, age 7, were shot in close range by a gunman on a stolen motorcycle. They were laid to rest in Jerusalem on Wednesday.

Police originally suspected neo-Nazi involvement in the crime, which they linked to the killing of French paratroopers earlier this month. Police said the weapon used in all the attacks, as well as the mode of operation, indicated the same finger pulled the trigger.

France 24 reported that Merah had been detained by the police in the past, in connection to the earlier killings.

According to initial reports, Merah claimed he killed the soldiers to protest French involvement in the war on terror.

French news site Le Monde reported the shooter had tried to join the French Foreign Legion a few years ago, but had been rejected for psychological reasons.

Israeli reporters on the scene said they now believe that the police deliberately misled the press about suspicions of neo-Nazi perpetrators so that the real suspects would drop their guard.

For years the main terrorist threat that French authorities have been concerned about has been al-Qaeda in the Islamic Maghreb, which grew from an extremist group in the former French colony of Algeria.

French officials have been worried that the group may try to conduct an action in France ahead of presidential elections in April and May, a counterterrorism official told The Associated Press this week. So far, it has never succeeded in reaching across the Mediterranean Sea to strike in Europe.

A man who claimed to have carried out the Jewish school shootings telephoned the France24 news room before the police raid.

According to France 24 staff, the man said he filmed Monday’s attack  and planned to put the film on the web. He also warned that the recent attacks would not be the last.