Prime Minister Tony Abbott has suggested that firearm laws may need to be changed as he said that the Martin Place gunman had a gun licence despite having a long criminal history that included being out on bail for being an accessory to murder.

As he announced an urgent review into the Martin Place siege that took the lives of two hostages, on Wednesday, Mr Abbott said that while he had great confidence in Australia's police and security agencies, there was a need to reflect on what could have been done better.

He said gunman Man Haron Monis had a licence for his gun and questioned existing gun laws, saying: "there are questions to be asked when someone with such a history of infatuation with extremism, violent crime and mental instability should be in possession of a gun licence".

"I do want answers to some obvious questions," he said.

Mr Abbott said the review – which will be conducted by federal and NSW officials –  would report back by the end of January and would focus on how Monis evaded authorities.

This includes how he got permanent residency in Australia, why he was receiving welfare payments, how he got a gun licence, why he was allowed out into the community on bail and why he had fallen off the terror watch list in 2009.

Mr Abbott said he would "not rest" until he was confident that Australians were as safe as the government could make them.

He said there was "incredulity" in the national security committee of cabinet when it was briefed on the details of Mr Monis' life.

Yesterday during the siege, hostages were forced to appear in videos, demanding that Mr Abbott speak to the gunman.

Mr Abbott said he did not speak to Mr Monis on the advice of police.

He added that people should only be able to drop off the terror watch lists if they were no longer a threat, but said that authorities did not yet know how strong Mr Monis' links were to Islamic State.

Mr Abbott said he was not able say whether or not Mr Monis was on the FBI's watch list.

"I can let you know that I have spoken to a number of Australia's international friends including President Obama," the Prime Minister told reporters.

Mr Abbott said he shared the Australian public's "exasperation" about how Mr Monis had evaded authorities.

He said that it appeared that the gunman had been "having a lend of us at the very least for so many years".

Along with examining Mr Monis' arrival in Australia and how he was granted asylum, permanent residency and citizenship and his interaction with welfare agencies, the terms of reference also call for investigation into: 

• the interaction of Mr Monis with the NSW justice system;
• Mr Monis' access to firearms;
• whether, how and at what stage relevant national security legislative powers including Control Orders were or could have been used in relation to his activities of security concern; and 
• any lessons learnt by the NSW and Australian Federal Police about the handling of the siege

Mr Monis moved to Australia from Iran in 1996 and received political asylum in 2001.

He had a history of more than 40 charges of indecent and sexual assault, sent offensive letters to the families of soldier killed in Afghanistan and was out on bail for being an accessory (before and after) to the murder of his ex-wife, by his then partner.

On Wednesday afternoon, questions were raised about the exact status of Mr Monis' gun licence.

Court documents show that during a police interview in 2011 in relation to a stalking an intimidation charge that was ultimately dismissed, Mr Monis said he had previously had access to a firearm when he worked as a "security officer".

"I had a licence then I went and got another licence ... I was shooting at the target," Mr Monis told police in the interview, a transcript of which was released to the media on Tuesday in a tranche of court documents.

"But is that firearms licence expired or still current," the interviewing police officer asked.

"No, of course that has been expired many years ago," Mr Monis replied.

"So do you still have any access to firearms?" the officer continued.

"No, no," Monis replied.

With Judith Ireland, Paul Bibby, Fergus Hunter 

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