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8 year oldThe two assailants entered the church in Saint-Etienne-du-Rouvray, near Rouen, during mass, taking the priest and four other people hostage, including two nuns.
Police said the men killed the priest, named as 84-year-old Jacques Hamel, by slitting his throat.
An interior ministry spokesperson said a second hostage was "between life and death".
Pierre-Henry Brandet, the spokesperson for the interior ministry, said the identities of the attackers remained unclear, but that anti-terrorism prosecutors would lead the investigation.
He told reporters at the scene that the two assailants had been killed by the BRI, a specialised police group, as they came out of the church building.
Brandet said bomb squad officers aided by sniffer dogs had been scouring the church for any possible explosives.
IS group claims attack
Arriving in Saint-Etienne-du-Rouvray to be briefed by police, President François Hollande decried a "vile terrorist attack".
The French president said the assailants "claimed to be from Daesh", using an Arabic acronym for theIslamic State (IS) group, which has claimed a string of recent attacks on French soil.
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