The situation is ongoing at this time, but it's reported that as many as 5 hostages have escaped their captors.

CNN:

A gunman holding hostages in a Sydney cafe is said to be demanding an ISIS flag and a phone call with Australian Prime Minister Tony Abbott.

The reported demands emerged after five hostages managed to flee the building, leaving an unknown number of people still trapped inside.

The gunman's requests were made through hostages who contacted several media organizations, CNN affiliate Sky News Australia reported.

Hundreds of police officers, some of them armed with sniper rifles, shut down a usually bustling area in Australia's most populous city amid the crisis.

Chilling images from local media showed people, believed to be hostages, with their hands pressed against the glass of the Lindt Chocolate Cafe in Sydney's central business district.
Footage showed them holding up a black flag with Arabic writing on it that reads: "There is no God but God and Mohammed is the prophet of God." That flag was different from the flag used by the terrorist group ISIS.

From Twitter:

There is a live stream here.