Merah, 23, was wanted in the deaths of three French paratroopers, three Jewish schoolchildren and a rabbi - all killed since March 11 in what Merah reportedly told police was an attempt to "bring France to its knees".
Police had been trying to capture the suspect alive since a pre-dawn raid on his apartment yesterday in the south-western city of Toulouse.
The killings he was accused of - and boasted about to police - have shocked France, ignited fear in moderate Muslims about stoking discrimination and may even affect the country's upcoming presidential election.
The seven murders, carried out in three motorcycle shooting attacks, are believed to be the first killings inspired by Islamic radical motives in France since the September 11, 2001, attacks.
French President Nicolas Sarkozy, speaking in Paris, said an investigation was under way to see if Merah, a French citizen of Algerian descent who claimed links to al-Qaida, had any accomplices. His mother and a brother were detained a day ago by police after the mother's computer became a critical link in tracking Merah down. The brother Abdelkader had already been linked to Iraqi Islamist networks.
Prosecutor Francois Molins said Merah burst out of his bathroom when police carefully entered his apartment today, wildly firing his gun about 30 times before jumping out an apartment window.
"(He)launches an assault, charging police through the apartment and firing at them with a Colt .45, continuing to advance, armed and firing, as he jumps from the balcony," Molins said.
Merah fired "until he was hit by a retaliatory shot from the RAID (elite police unit), which felled him with a bullet to the head," Molins said.
The prosecutor said police fired in self-defence after going in cautiously through the front door, using robot cameras to see if there were any boobytraps. Three members of the special squad were wounded, bringing the total of injured French officers throughout the stand-off to five.
Merah, lying on the ground below his second-storey apartment, was wearing a flak jacket and black djellabah robe. A Colt 45 - the type of weapon used in the three attacks - was at his side along with a sack.
Authorities said Merah espoused a radical form of Islam and had been to Afghanistan and the Pakistani militant stronghold of Waziristan, where he claimed to have received training from al-Qaida. He also had a long record of petty crimes in France for which he served time in prison.
Elite police squads had set off sporadic blasts throughout the night and into the morning - some blew off the apartment's shutters - to pressure Merah to give up. A new set of detonations, known as flash bangs, resounded at 10:30 am local time, signalling an end to the stand-off. Volleys of gunfire were heard an hour later.
Interior Minister Claude Gueant said police "went in by the door, taking off the door first. They also came in by the windows".
He said police used special video equipment to search the second-floor apartment but could not find him until the instruments surveyed the bathroom.
"The killer came out" firing "with extreme violence," Gueant told reporters. Police "tried to protect themselves and fired back".
Merah had made "extremely explicit films" of all three deadly attacks, video since viewed by police, and claimed to have posted them online, the prosecutor said.
In the film of the March 11 attack that killed a paratrooper, the prosecutor said the gunman is heard saying: "You kill my brothers - I kill you."
In his film of the second attack, on March 15 that killed two paratroopers and wounded a third in nearby Montauban, Merah cried out "Allahu Akbar!" or "God is great" in Arabic, the prosecutor said.
Authorities spoke little about the video of Merah slaying a rabbi and three children at a Jewish school in Toulouse. A witness to other video of that rampage, from the school, had described him shooting young children in the head.
Merah told negotiators he killed to avenge the deaths of Palestinian children and to protest at the French army's involvement in Afghanistan. He was also upset over a French government ban last year on face-covering Islamic veils.
Molins said Merah told investigators where to find the bag with the videos of the slayings, caught by a camera that had been strapped to his chest and given to someone else to keep.
After the stand-off ended, Sarkozy announced tough new measures to combat terrorism. He said anyone who regularly visits "websites which support terrorism or call for hate or violence will be punished by the law." He also promised a crackdown on anyone who goes abroad "for the purposes of indoctrination in terrorist ideology."
The French president also appealed to citizens not to confuse violence with France's estimated five million Muslims.
"Our Muslim compatriots had nothing to do with the crazy motive of a terrorist," Sarkozy said, noting that Muslim paratroopers were among those killed by the radical.
In Toulouse, the state prosecutor said off-and-on negotiations yesterday with the suspect - all recorded by authorities - broke down again at night. Merah, after initially saying he would surrender, later said he would resist, and that it would be either them or him.
"If it's me, who cares? I'll go to paradise," the prosecutor quoted Merah as saying.
Merah was tracked down by more than 200 special investigators after the Monday attack on a Jewish school in northern Toulouse.
The prosecutor said two major breaks in the case led them to Merah: his mother's computer, which was used by Merah to respond to an online ad by a paratrooper trying to sell his scooter.
The soldier became Merah's first victim. Authorities also found a Yamaha motorcycle shop where Merah suspiciously sought information about how to deactivate a GPS tracker.
Molins said Merah had plans to kill another soldier, which prompted the first police raid at around 3am yesterday. After that erupted into a firefight, wounding two police, the stand-off dragged on and on, with sporadic negotiations.
HOW ATTACKS AND SIEGE UNFOLDED
A wave of killings by an Islamist extremist in southern France sparked the country's biggest manhunt since the 1990s and a two-day siege that ended today after he was shot dead by police. Here is a timeline of what happened:
- March 11: A French paratrooper is killed by a lone gunman on a motorbike in the city of Toulouse. Authorities say the killer had responded to an ad the victim placed offering to sell his motorcycle.
- March 15: Two French paratroopers are killed and one is seriously injured when a gunman on a motorbike shoots them at a bank machine in Montauban, 50 kilometres (30 miles) from Toulouse.
- Monday, March 19: An attacker on a motorbike guns down three children and a rabbi at a Jewish school in Toulouse, France's worst school shooting and the deadliest attack on Jews in France in three decades.
That night, police investigators tap the phones of the mother of Mohamed Merah, who had emerged as the chief suspect in the probe.
- Tuesday, March 20: Schools across France hold a moment of silence to honour the school shooting victims. By afternoon, police trace Merah to an apartment in the Cote Pavee neighbourhood of Toulouse.
10:00 pm: French officials meet, within half an hour police decided to arrest Merah, his mother and his brother.
- Wednesday, March 21:
3:20 am: Police descend on Merah's apartment. Police say he opened fire when officers arrived, shooting one in the knee and a second in his bulletproof vest. Attempts to arrest him are repelled by gunfire and a protracted stand-off ensues.
8:05 am: French minister says Merah has thrown a handgun out of a window but still has other weapons.
12:30 pm: French police resume negotiations with Merah.
1:05 pm: Police union official says Merah has promised to turn himself in in the next hour and a half, otherwise police will force their way in. Merah reneges on his pledge but the assault does not materialise.
Soon before 9 pm: Street lights cut around Merah's building to help police using night-vision goggles.
11:30 pm: Three explosions ring out from the building, accompanied by orange flashes of light - a tactic police say aims to pressure Merah to give up.
- Thursday, March 22:
1:40 am: Two new blasts and brief bursts of gunfire ring out at the apartment. Sporadic blasts are heard throughout the night at one-hour intervals.
7:10 am: French interior minister says Merah wants to die "with weapons in his hands."
11:30 am: Police gingerly enter his apartment through the door and the windows. As they arrive, Merah bursts out of the bathroom, shooting officers with his Colt .45 and diving out of a window. Officials say later he was shot in the head. Prosecutor Francois Molins insists police acted in self-defence.
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