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"All the children have been released and the criminals have surrendered to the jirga," said interior ministry spokesman Javel Iqbal Cheema. A jirga is a council of tribal elders. Cheema said none of the children were hurt.
Violence has spread across Pakistan in recent months, seeping out of remote tribal regions that are sanctuaries for al Qaeda and Taliban militants and into cities and towns, raising fears about the stability of the nuclear-armed U.S. ally.
Cheema said the gunmen were members of a kidnap gang but government officials and police had earlier said there were about seven Islamist militants holding the children in the school in Bannu town.
President Pervez Musharraf told a new conference in London the gunmen were "extremists".
The gunmen fled into the school in the town in North West Frontier Province and took the children hostage after they had kidnapped a health department official and his driver, police said.
Police chased the gunman and one militant was killed in a clash before the rest of them fled into the school, police said. The health official and his driver were freed.
Interior Minister Hamid Nawaz had said there were between 200 and 250 children in the school.
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