Russian special forces successfully stormed the theatre where Chechen rebels held up to 700 people hostage early Saturday morning.

The hostages were freed.

Casualty reports were unclear, but journalists outside the theatre said they saw more than 20 bodies removed. Chechen leader Movsar Barayev was killed, Russian officials said.

"Everybody here is very surprised and very relieved," said CBC correspondent Michel Cormier.

The Chechens had machine guns and explosives, and had talked about being on a suicide mission. People feared there could have been a massacre or the rebels could have blown up the building.

The attack came just before a deadline set by the rebels. They said they would begin shooting hostages at dawn Saturday unless Russian withdrew its soldiers from Chechnya.

Russian authorities had said they wouldn't give in to blackmail.

Most of the hostage-takers had been killed, said military spokesman Sergei Ignatchenko. The soldiers attacked when the rebels began executing the captives, and the hostages began to escape.

Other rebels were brought from the theatre with their hands bound.

As many as 40 Chechens stormed the theatre Wednesday.

Before the soldiers attacked, Pavel Kudryabtsev, a Russian official at a command centre handling the crisis, said two hostages had been shot and two wounded.

"The situation is very tense," Cormier said just minutes before the assault began.

The attack came two hours after reporters heard a burst of sporadic gunfire and explosions, the second outburst in two hours, around the theatre.

The second set of noises occurred about 5.40 a.m Saturday morning Moscow time, just before the dawn deadline the rebels set.

Earlier Saturday morning, about 3 a.m. local time, there was a small explosion in the theatre and sounds like shots.

That may have been a grenade and firing after two hostages fled, and were apparently wounded, Cormier said.

Earlier Friday, the rebels freed eight children unharmed. As many as 30 children remained inside.

Hopes were raised that the hostage-taking would end peacefully when the Red Cross announced that 75 foreigners were being freed.

But the deal collapsed Friday afternoon, and the rebels issued an ultimatum for Russia to begin pulling troops from Chechnya by 6 a.m. Saturday.

A woman with duel Canadian citizenship is believed to be among the captives. Other foreigners include Americans, Britons, Australians, Germans, Dutch and Austrians.

Some captives have phoned from inside the theatre. Explosives have been laid all over the building, the hostages said, as they pleaded with authorities not to storm the building.

Just over 50 hostages were released since the Chechens attacked. A couple of people managed to escape Thursday.

Before Saturday morning, it was believed only one hostage had been killed a woman shot when the siege began. Her body was removed by medics 24 hours later.