Australian Prime Minister Tony Abbott has questioned why the gunman in the Sydney cafe siege was not on the country's terror watch list.

He said the government would examine why Man Haron Monis had been on bail.

Mr Abbott paid tribute to the two hostages who died in Monday's siege, describing them as "good people".

The two hostages and Monis died as police commandos stormed the cafe in Martin Place early on Tuesday morning, ending the 16-hour siege.

An investigation has been launched into the police operation.

Police are also investigating the motives of Monis - an Iranian refugee who was a known extremist and faced multiple criminal charges - and how he got a gun.

At a press conference, Mr Abbott said: "How can someone who has had such a long and chequered history not be on the appropriate watch lists and how can someone like that be entirely at large in the community.

"These are questions that we need to look at carefully and calmly and methodically."

However, Mr Abbott added that it was "possible" that the siege would have taken place even if Monis had been on a watch list.

"The level of control that would be necessary to prevent people from going about their daily life would be very, very high indeed," he said.

The victims have been named as cafe manager Tori Johnson, 34 and Sydney lawyer Katrina Dawson, 38.

Mr Abbott described the victims as "decent, good people" who were "caught up in the sick fantasy of a deeply disturbed individual".

In Martin Place, people have been arriving to sign condolence books and leave flowers in their memory.

'Emergency plan'

Central Sydney was put in lockdown on Monday morning as the gunman entered the Lindt Chocolat Cafe and seized 17 hostages.

Five hostages managed to sprint to safety on Monday afternoon. Several more escaped in the early hours of Tuesday, as commandos stormed the cafe.

At a press conference on Tuesday, NSW Police Deputy Commissioner Catherine Burn would not say whether Monis shot the two hostages himself.

Nor would she confirm media reports that cafe manager Mr Johnson was shot when he grappled with Monis. But she said that "every single one of those hostages acted courageously".

Asked if police stormed the cafe because of something they saw or heard from within the cafe, Commissioner Burn would say only that "shots were heard and an emergency action plan was activated".

She said it was "extremely important that I do not say a great deal about the events of the past 24 hours" while the investigation is under way.

The investigation - standard practice when police are involved in a fatal incident - is being led by New South Wales Homicide Squad detectives on behalf of the state's coroner, and could take weeks or months.

Source: BBC