David Cameron tells MPs that fewer than 30 Britons were initially thought to have been kidnapped in Algeria, but this number has now been "quite significantly reduced".
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Addressing the House of Commons, the prime minister said the British gas workers were victims of "a brutal and savage terrorist attack" in the middle of the Sahara desert - "one of the most remote places in the world".
He said the Algerian military had launched an operation to free the hostages before he had been informed because Algiers had thought there was a threat to the lives of the hostages.
The Algerian army launched its attack on the insurgents who invaded the In Amenas natural gas facility on Thursday - hitting the group with a combination of helicopter fire followed by special troops. The move angered national governments, including the British, who complained they were not informed of the Algerian campaign until it began.
A number of hostages, from varying countries including Britain, the US, Norway, Japan and France, have been caught up in the violence. The death toll remains unconfirmed but varies between six and 35.
Mr Cameron, who cancelled his speech on Europe from Holland, chaired a Cobra emergency committee on Friday morning, and said on Thursday that the country "should be prepared for bad news". Despite reports from Algerian state news agency that the crisis had ended last night, the Algerians say it is ongoing.
Militants claimed 15 of their group died, alongside 35 hostages, when the Algerian army strafed the compound where the militants were with helicopters. The official Algerian news agency said four hostages had died on Thursday, two Britons and two Filipinos, following the deaths of two, including one Briton, the day before.
The exact number of hostages being held has varied but reports came in that seven hostages remained captured and alive.
Mokhtar Belmokhtar is notorious for being a very successful criminal and a particularly violent one - defence expert Dr Tobias Feakin
"An important number of hostages were freed and an important number of terrorists were eliminated, and we regret the few dead and wounded," Algeria's communications minister, Mohand Said Oubelaid, told national media. He added that the "terrorists are multinational," coming from several different countries with the goal of "destabilizing Algeria, embroiling it in the Mali conflict and damaging its natural gas infrastructure."
On Thursday, Mr Cameron said "we should be prepared for the possibility of further bad news, very difficult news, in this extremely difficult situation".
Who are they dealing with?
Responsibility for the attack has been claimed by Mokhtar Belmokhtar [pictured right]- a notoriously violent former al-Qaeda leader who set up his own insurgent group, the Masked Brigade, 18 months ago. He is reported to have said the action was in response to Algeria allowing the French military to pass through its airspace to engage with rebels in northern Mali.
Sources on a top-tier Al-Qaeda web forum also released a picture of the mujahid commander Abu al-Baraa al-Jazairi [pictured below left], who it claimed was the commander of the hostage operation at the gas facility in Algeria. He was reportedly killed during an Algerian military raid on the complex.
However, Dr Tobias Feakin, a senior research fellow at the Royal United Services Institute and director of national security at the Australian Strategic Policy Institute, said he is more "circumspect" about the idea that this attack is to do with Mali.
"Mokhtar Belmokhtar is notorious for being a very successful criminal and a particularly violent one," he said. "He is known for drug trafficking, cigarette smuggling, extortion and kidnap. This means the motivations for this attack come out blurred.
"Around 18 months ago he pulled away from the AQIM association. He appeared to move away from the ideological side and moved into the money making side of things.
"If he and his men are willing to die for their cause, or for a cash payment, then whoever is going in is facing a very different situation than otherwise - the rules of engagement become very difficult."
He also pointed out that Belmokhtar has roots in the Tuareg culture, who are involved in the northern Mali rebellion, further blurring what his aims might be.
However, "the detail of planning would appear to suggest there was some kind of insider involved or at least there has been a great deal of reconnaisance,which would have had to have taken place in advance of the French going into Mali," he said.
Who is Mokhtar Belmokhtar?
Known as both "Mister Marlboro", a reference to his cigarette smuggling, and the "Uncatchable", for obvious reasons, over the course of the 21st century Belmokhtar has risen to become the "dominant jihadi personality in the Sahara, according to the Jamestown Foundation.
Born in Algeria in 1972, Belmokhtar, also known as Laaouar (the one-eyed), has said he entered into jihadism at the age of 19. In the 90s he is reported to have spent time at al-Qaeda training camps in Afghanistan, before returning to Algeria and becoming involved in the country's emerging jihadist community.
At the same time he began operating as a link between al-Qaeda and Algerian jihadi groups. As his role within al-Qaeda grew, Belmokhtar's responsibilities diversified.
He began raising funds for the organisation through a range of activities - from cigarette smuggling to running protection rackets. In 1999 he was suspected to have taken a lead role in the kidnapping of two European and two Canadian hostages, who were reportedly released for €5m and the release of a number of militants.
Eighteen months ago he split from AQIM (Al-Qaeda in the Islamic Maghreb) to operate under the banner of the 'Masked Brigade'.
There have also been questions raised over the decision by the Algerian military to take action, when governments involved had not been informed.
Traditionally the Algerian military has taken a pretty hard line on Islamist insurgents operating in their country - Defence Lecturer Dr Jonathan Hill
Downing Street said on Thursday Algerian forces launched their operations without consulting with the British government. Militants are said to have reported that hostages died after Algerian helicopters strafed the compound where they were being held.
Dr Jonathan Hill, a senior lecturer in defence studies at King's College London, says the Algerian military, has a history of zero tolerance against insurgents.
"Traditionally the Algerian military has taken a pretty hard line on Islamist insurgents operating in their country," he said. "That is their policy and it has tended to be successful. The scale of threat is much reduced from what it used to be."
He said Algerian military strategy stems from the 90s when there was a dispute within the government as how to deal with insurgency. The 'irradicators' group, largely made up of military leaders, "generally came out on top" over the 'reconcilers' faction.
An additional element is the importance of natural resources in unerpinning the Algerian economy. "In addition to the fact that the military has traditionally taken a hardline against these groups, the government will be concerned about its reputation," Dr Hill said.
"It doesn't appear that production is under threat, but they will want to send out a message that if you try this kind of thing the military will go after you."