* Standoff with police shows no sign of resolution
* Police reinforcements arrive in evening
* Defense minister: we want to catch him alive
* 24-year-old gunman says he is member of al Qaeda
* Gunman says he is not a martyr but a killer
* Sarkozy, religious leaders appeal for unity (Adds scene detail, defence minister, analyst, lawyer comments)
By John Irish and Daniel Flynn
TOULOUSE, France, March 21 French police played a waiting game on Wednesday night with a besieged gunman suspected of shooting dead seven people in the name al Qaeda, seeking to capture alive a militant who had boasted of bringing France to its knees.
The 24-year-old Muslim shooter, identified as Mohamed Merah, has been bottled up by France's elite RAID commandos since 3 a.m. (0200 GMT) inside a five-storey building in a suburb of the southwest city of Toulouse - a drama that has gripped France a few weeks ahead of a close-fought presidential election.
Police reinforcements arrived at the scene at around 10 p.m. (2100 GMT) and authorities switched off street lights in the street, in a possible sign of action.
"This will not last for days, because of physical and mental fatigue. All the experience with crazed gunmen like this is that they stop at some point," Defence Minister Gerard Longuet said on TF1 television on Wednesday.
"What we want is to capture him alive, so that we can bring him to justice, know his motivations and hopefully find out who were his accomplices, if there were any," he added.
Thomas Withington at the London Centre for Defence Studies said an elite commando team could launch an assault after throwing a stun grenade into the house.
"What complicates things is that they want to take him alive. They want to wait until he gets very tired," he said.
Merah, who has told police negotiators he was trained by al Qaeda in the lawless border area of Pakistan, said he killed three French soldiers last week and four people at a Jewish school in Toulouse on Monday to avenge the deaths of Palestinian children and because of French army involvement in Afghanistan.
A French citizen of Algerian origin, Merah boasted to police negotiators he had brought France to its knees and said his only regret was not having been able to carry out his plans for more killings.
"He has no regrets, except not having more time to kill more people and he boasts that he has brought France to its knees," Paris Prosecutor Francois Molins, part of the anti-terrorist unit leading the investigation, told a news conference.
Merah had already identified another soldier and two police officers he wished to kill, Molins said.
"He has explained that he is not suicidal, that he does not have the soul of a martyr and that he prefers to kill but to stay alive himself," the prosecutor said, adding that Merah had repeated promises to surrender to police.
CALL FOR UNITY
Earlier, at a ceremony in an army barracks in Montauban, near Toulouse, President Nicolas Sarkozy paid tribute to the three soldiers of North African origin killed last week. A fourth soldier of Caribbean origin is in a coma.
"Our soldiers have not died in the way for which they had prepared themselves. This was not a death on the battlefield but a terrorist execution," he said, standing before three coffins draped in the French flag.
"This man wanted to bring the Republic to its knees. The republic did not give in, the republic did not back down, the republic has not weakened. The republic has done its duty, and tomorrow justice will be done," said Sarkozy, who is running for re-election in five weeks time.
U.S. President Barack Obama spoke by phone with Sarkozy to voice his solidarity with the government and people of France.
Several other presidential candidates also attended the ceremony, including Socialist Francois Hollande, who is ahead of Sarkozy in voting intention polls.
Sarkozy's appeal for unity came after far-right leader Marine Le Pen, a rival presidential candidate, said France should pursue war on Islamic fundamentalism.
"We must now wage this war against these fundamentalist political and religious groups that are killing our children, that are killing our Christian children, our Christian young men, young Muslim men and Jewish children," she told the i-Tele news channel, questioning the decision to deploy in Afghanistan.
But leaders of the Jewish and Muslim communities said the gunman was a lone extremist and called for calm and unity.
Sarkozy's handling of the crisis could be a decisive factor in determining how the French people vote in the two-round presidential elections in April and May.
Immigration and Islam have been major campaign themes after Sarkozy tried to win over the voters of Le Pen, who accused the government of underestimating the threat from fundamentalism.
France's military presence in Afghanistan has divided the two main candidates in the election. Hollande has said he will pull them out by the end of this year while Sarkozy aims for the end of 2013.
Interior Minister Claude Gueant said Merah was a member of an ideological Islamic group in France but this organisation was not involved in plotting any violence.
He said Merah had thrown a Colt 45 pistol of the kind used in all the shootings out of a window of the block of flats, where he has been living, in exchange for a mobile phone.
Two police officers were injured in a firefight with the gunman after police swooped at 3 a.m. (0200 GMT) on Wednesday. Officials said police had also arrested Merah's girlfriend and his brother, known to authorities as a radical Islamist.
The raid came just three days after the school attack and followed an unprecedented manhunt by French security forces.
Merah's first attack, on March 11, was on a soldier he had contacted on the pretext of wanting to buy his motorcycle.
Gueant said police identified the IP address he used because he was already under surveillance for radical Islamist beliefs.
"We knew, and that is why he was under surveillance, that he had travelled to Afghanistan and Pakistan," the minister said.
After Merah's attack on the Jewish school, police received a tipoff from a scooter repair shop in Toulouse where the gunman asked how to remove a GPS tracker device.
Merah's telephone was tapped from Monday and with the help of other information the police decided to raid his house.
A group of young men from Merah's neighbourhood described him as a polite man of slight build who liked football and motorbikes and did not seem particularly religious.
"He isn't the big bearded guy that you can imagine - you know the cliche," said Kamal, who declined to give his family name. "When you know a person well you just can't believe they could have done something like this."
Merah's lawyer Christian Etelin, who has defended him in several minor crimes, said that his client had a tendency towards violence that had worsened after a stay in prison and trips to Afghanistan and Pakistan.
"There was his religious engagement, an increasing hatred against the values of a democratic society and a desire to impose what he believes is truth," Etelin told France 2 television, adding he had not expected this level of violence.
The Jewish victims from the Ozar Hatorah school were buried in Jerusalem on Wednesday. Parliament speaker Reuben Rivlin said in his eulogy at the hill-top cemetery that the attack was inspired by "wild animals with hatred in their hearts". (Additional reporting by Jean Decotte and Nick Vinocur in Toulouse; Brian Love, Daniel Flynn, Geert De Clercq, Alexandria Sage and Leigh Thomas in Paris; Joseph Heller in Jerusalem; Writing by Geert De Clercq; Editing by Mark Heinrich)