Merah, a 23-year-old man of Algerian origin, is believed to be the gunman who perpetrated Monday's terror attack on Ozar Hatorah Jewish School in Toulouse, as well as in the killing of three French paratroopers last week.
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He refuses to surrender to authorities and his home has been the scene of a dramatic standoff with police since 2 am Wednesday.
"He claims to be a jihadist and says he belongs to al-Qaeda," French Interior Minister Claude Gueant told reporters in Toulouse. "He wanted to avenge the Palestinian children and take revenge on the French army because of its foreign interventions."
Paris Prosecutor Francois Molins said that Merah's radical views were known to authorities, and that "he has been under surveillance by French intelligence for a couple of years."
Merah's psychological profiling suggested that he has a history of violence and that he has been suffering from mental illness since his youth, Molins added.
Authorities had intelligence suggesting that Merah planned to kill another soldier imminently.
Security forces sieging his Toulouse residence have so far refrained from storming the premises, because they do not have accurate information as to the type and amount of munitions he may have, he said.
The French prosecutor added that Merah had been to Afghanistan twice, and had trained in the Pakistani militant stronghold of Waziristan.
Gueant added: "The main concern is to arrest him, and to arrest him in conditions by which we can present him to judicial officials… We want to "take him alive ... It is imperative for us."
Still, Merah's friends paint a different portrait of his than Molins. French newspaper Le Figaro quoted several of his friends as saying that Merah was "a gentle person. Everyone loves him."
"This man, who always strived for a better future, was never perceived as a Jihadist, as someone capable of murdering a child… He was never a violent person," one friend, who spoke anonymously, told the newspaper.
Roi Simyoni contributed to this report
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