A female barrister who died in the Sydney siege has been hailed a hero amid reports she was killed shielding her pregnant friend from gunfire.

Katrina Dawson died along with cafe manager Tori Johnson, who was praised for trying to grab the gun off hostage-taker Man Haron Monis at the end of the 16 hour siege.

Tributes were paid to the victims at a memorial service, as questions were raised over why the self-styled sheikh had been granted bail after a string of alleged sex attacks and involvement in a murder.

As Sydney struggled to come to terms with the shock of the 16-hour siege, a video also emerged showing some of the hostages inside the cafe, filmed by their captor.

In the video, uploaded by the gunman, three hostages are pictured describing demands made by the gunman - including that he be brought an Islamic State flag.

Television news footage also emerged of the moment when a TV reporter broke down in tears live on air as she read out the name of Ms Dawson - realising that she knew her.

Huge piles of flowers were laid outside the Lindt café in Sydney’s financial district, as more details about the victims and the gunman began to emerge.

At a prayer service in St Mary's Cathedral about 500 metres from the cafe, Archbishop Anthony Fisher spoke of how the "heart of our city is broken by the deaths of two innocents".

"Reports have emerged this morning of the heroism of the male victim of this siege," Archbishop Fisher said.

"Apparently seeing an opportunity Tori Johnson grabbed the gun - tragically it went off killing him. But it triggered the response of the police and eventual freedom for most of the hostages."

"Reports have also emerged that Katrina Dawson was shielding her pregnant friend from gunfire. These heroes were willing to lay down their lives so others might live."

Deputy Police Commissioner Catherine Burn could not confirm reports of Mr Johnson's tussle with the gunman, adding that investigators were still compiling the chain of events that led to the siege ending.

But the police chief admitted that Monis, 50, had a "serious history of criminal offences and a history of violence".

"This was a man that we do believe had some extremist views and we also believe that he was unstable," she added.

Questions are now being raised as to why Monis was on bail at all - after it emerged he was accused of a string of sex attacks and implicated in a murder.

He was also convicted of sending offensive letters to the grieving relatives of soldiers killed in Iraq.

NSW Premier Mike Baird told a press conference this morning that he was "outraged" that Monis was out on the streets.

His comments were also echoed by Australian Prime Minister Tony Abbott.

Speaking at the same conference, Mr Abbott said he had asked "how can someone who has had such long and dangerous history not be on the appropriate watch-lists?"

He added: "And how can someone like that be entirely large in the community? These are questions we need to look at clearly, calmly and methodically to learn the right lessons."

As well as Ms Dawson and Mr Johnson, three female hostages were also shot in the attack and are being treated in hospital. They are in a stable condition.

A police officer who was shot in the face during the shoot-out had been released from hospital.

"I spoke to the police officer as he was going home. His only words to me were 'I'll be back at work tomorrow'," Ms Burn said.

Ms Dawson was having a cup of coffee with a colleague at the café when the gunman rounded up 17 hostages yesterday morning.

A statement from the New South Wales Bar Association said: "Katrina was one of our best and brightest barristers who will be greatly missed by her colleagues and friends at the NSW Bar.

"She was a devoted mother of three children, and a valued member of her floor and of our bar community."

Mr Johnson's parents, in a statement shared via Sydney broadcast journalist Ben Fordham, praised their "beautiful boy" and called for everyone to "pray for peace on Earth".

"We are so proud of our beautiful boy Tori, gone from this earth but forever in our memories as the most amazing life partner, son and brother we could ever wish for," the statement said.

Flags were lowered to half-staff on the landmark Harbour Bridge as Australians awakened to the surreal conclusion of the crisis.

The siege ended in dramatic scenes, as a group of panicked hostages ran from the building into the arms of waiting police in the early hours of Tuesday morning local time.

Specialist police then swooped on the gunman, who was armed with a pump-action shotgun.

A series of loud explosions were heard at the scene before glass shattered onto the pavement from a nearby window.

Monis was shot dead when specialist officers threw flash grenades into the building in the Martin Place premises at around 2:10am local time.