Shocked Australians mourned the victims of the Sydney cafe siege Tuesday as authorities investigated why its Iranian-born perpetrator remained at large despite a history of violence and extremism.

Emotions were raw as Australia struggled with the news that two hostages were killed when the daylong siege reached a climax in the early hours, as police commandos stormed the Lindt eatery in response to the Islamist gunman opening fire.

That could have been absolutely anyone," one of those bearing flowers, Angelica Haifa, told AFP.

Police in SWAT-style gear hurled percussion grenades and opened fire as they stormed the cafe just after 2:00 a.m. Tuesday, following a standoff of more than 16 hours.

Two of the 17 hostages died: cafe manager Tori Johnson, 34, and mother-of-three Katrina Dawson, 38, with Prime Minister Tony Abbott blaming their deaths on the gunman's "sick fantasies".

The pre-Christmas siege of the Lindt chocolate cafe began Monday morning and triggered a massive security lockdown in the bustling financial district as hundreds of police surrounded the site.

The government in September raised its terror threat level and police conducted largescale counterterror raids across the country.

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