They consider it a kidnapping, I don't. They are friends

Ibrahim Ali el-Sayyed Moussa

The armed man says he will not release the hostages until his estranged wife brings his two sons back from Germany.

The Egyptian police said the kidnapper was using a mobile phone to speak with authorities in Germany and was refusing to speak with local police.

In Berlin, German Foreign Ministry officials said that Ibrahim Ali el-Sayyed Moussa, 45, was armed with a pistol and grenades, and that a crisis cell had been set up.

Speaking to French news agency, AFP, the kidnapper said the four tourists had volunteered to help him recover his children and were free to move around.

One of the German hostages disputed his version of events after the Egyptian tour guide handed him the phone.

When asked if the group had been kidnapped, he replied "yes".

Marital dispute

The Egyptian authorities said the tour guide's German wife had taken the two youngest of their three children, ages 3 and 7, after she was awarded temporary custody of them by a German court.

The eldest, a daughter in high school, was in Egypt with her father.

Police said the couple married in 1991 and the wife left with their sons a year ago following a marital dispute.

"All I want is my children," the kidnapper said.

"I haven't seen them and I haven't been able to talk to them by telephone," he added.

Luxor is one of the most popular tourist sites in Egypt

The German Foreign Ministry has set up a crisis reaction centre to deal with the problem and Germany has offered Egypt the assistance of its elite GSG 9 intervention force.

But the offer has for now been refused a spokesman for the ministry said.

The incident is the first security incident involving foreign tourists in Egypt since Muslim militants killed 58 foreign visitors in Luxor in 1997.

The tourism industry suffered heavy losses after the attack.

The BBC's Caroline Hawley in Cairo says the kidnapping will be a blow to the tourist industry which has tried hard to present the country as a safe holiday spot.