All 15 Marxist guerrillas of the Tupac Amaru Revolutionary Movement (MRTA), who have been holding the hostages since 17 December, died in the battle. One hostage was reportedly killed, several injured and at least five Peruvian soldiers wounded.
Jubilant soldiers ripped the rebels' flag from the compound roof and held their rifles aloft as triumphal military music resounded from loudspeakers. Explosions continued after the operation as booby traps planted by the rebels went off.
The attack began at 9.30pm (3.30pm local time) when thick black smoke and flames began billowing from the residence. Soldiers scrambled across the roof of the building and soon afterwards, amid explosions, gunfire and clouds of tear gas, hostages were also seen crawling across the roof and being guided to safety by soldiers.
Several hostages and soldiers were carried away on stretchers. The Peruvian Foreign Minister, Francisco Tudela, was one of those rescued. Morihita Aoki, the Japanese ambassador, smiled and waved from an ambulance as it arrived at a hospital.
The Peruvian President, Alberto Fujimori - smiling and wearing a flak jacket - entered the ambassador's residence where he congratulated troops. Later, he was driven through the streets of Lima to a hero's welcome, holding aloft the Peruvian flag.
The decision to storm the compound came days after two senior government minsters resigned after accepting blame for lapses in security, to be replaced by two hardline generals.
The crisis began on 17 December when MRTA rebels stormed a cocktail party held to celebrate the birthday of the Japanese emperor. Their demands for the release of jailed comrades were always rejected by President Fujimori. At first there were up to 500 hostages. Most were released but 72 have been incarcerated for the entire 126 days of the siege.
Members of the British Special Air Service arrived soon after the crisis began. Although last night's dramatic finale had all the hallmarks of an SAS operation and was similar in its execution to the end of the 1981 Iranian embassy siege in London, the Ministry of Defence said the SAS were not directly involved.
The Japanese and United States governments stressed last night that they had no prior knowledge of the attack.
Drama destined for violent end, page 17Reuse content