The gang, some strapped with explosives, herded captives into the school's gymnasium and mined it, RIA news agency said. They threatened to blow up the building with their captives if interior ministry forces tried to take it by force. Itar-Tass news agency said a local Muslim leader entered the school to meet the attackers but they turned him away. North Ossetia has a small Muslim community. Most Chechens are Muslim.
Witnesses near the school said they could hear the continuous rattle of gunfire into the early afternoon. "Every gunshot I hear is like a shot into my heart," said one woman, Vera, tears pouring down her cheeks and who said her child was among the hostages. Hundreds of police, rescue officials, and interior ministry troops with AK-47 rifles surrounded the school. Armoured vehicles were parked nearby.
Tass said the attackers demanded the release of fighters seized in neighbouring Ingushetia in June during a huge rebel raid on the region. They insisted they would negotiate only with the presidents of North Ossetia and Ingushetia.
"I was standing next to the (school) gates when I saw three people with guns running. At first, I thought it was a joke but then they started shooting in the air. Then I ran away," teenager Zaurbek Tsumartov told local television.
At least three civilians were killed and 11 injured in the initial phase of the attack, Tass quoted the local interior ministry as saying. Nearly 50 children had managed to escape.
It was the latest in a wave of violence that has hit Russia in recent weeks, blamed on Chechen separatists and raising questions over President Vladimir Putin's hardline strategy to bring the rebels to heel. A tense presidential election was held in Chechnya on Sunday, when the Kremlin's candidate won easily.
Putin, who returned hurriedly from a Black Sea vacation to Moscow to handle the crisis, rose to power in 2000 on the back of his tough approach on Chechnya and has always refused to negotiate with separatists.
Previous hostage-taking involving Chechen rebels have all ended with huge loss of life. When Chechen rebels seized 700 hostages at a Moscow theatre in 2002, 129 hostages and 41 guerrillas were killed when Russian troops stormed the building using poisonous gas.
In 1995, Chechen rebels took hundreds of hostages in a hospital in the southern Russian town of Budennovsk. More than 100 died during the assault and a botched Russian commando raid.
Reports of the number of hostages held in the latest attack varied between "more than 120" and 400, including up to 200 children. The school has about 900 pupils and 60 teachers. "There could be up to 400 children and teachers held hostage," Irina Terkina, a spokeswoman for Putin's envoy in southern Russia, said by telephone.
The mass hostage-taking was a new challenge to Putin's Chechnya policies. On Tuesday, a female suicide bomber blew herself up in central Moscow in an attack that killed nine people and injured 51. On August 24 two passenger planes were blown up apparently by suicide bombers in attacks that killed 90 people.
North Ossetia lies to the west of the seething Chechnya region where Russian forces have been fighting a war with separatist rebels for a decade.
There was no immediate charge that Chechen rebels were behind the attack, but the well-organised assault and the proximity to Chechnya suggested they may well be involved.
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