Thirteen people, including an Indian, two Sri Lankans and a Japanese national, were either rescued or freed.
A 19-year-old Indian girl, Tarishi Jain, was among the 20 hostages killed during the 12-hour siege of the Holey Artisan Bakery in Dhaka's diplomatic enclave of Gulshan - Bangladesh's first significant brush with organised terror.
The Islamic State, which claimed responsibility, uploaded grisly pictures of the carnage, suggesting that the killers might have sent the photographs before they were neutralised. The police did not immediately confirm whether the pictures were from the massacre site.
Brigadier Nayeem Ashfaque Chowdhury, who helped plan the lightning commando operation, said most of the 20 were foreigners and had had their throats slit last night by the suspected Islamic State militants.
"All of them were killed last night and most of them were brutally murdered with sharp weapons," an officer said.
Sources said the gunmen had ordered all the Bangladeshis to stand up before they began killing the foreigners.
Nine Italians, many of them garment industry employees, seven Japanese aid workers, a US citizen of Bangladeshi origin and two Bangladeshis are among the slain, according to the Bangladesh defence ministry's public relations wing.
A 10th Italian and several Bangladeshis are missing. One of the dead was the wife of an Italian businessman, who found her after spending all night hiding behind a tree outside.
A minute's tribute was paid to the Dhaka victims before tonight's Euro 2016 match between Italy and Germany, with the Italian players wearing black armbands.
Local media reported that all the militants were Bangladeshis.
Chowdhury said the 7.40am operation was over in "12 to 13 minutes" and none of the commandos was harmed. The extremists had killed two officers last night during a police bid to enter the building. Some 30 people are believed injured.
"We do not want terrorism in Bangladesh. An incident like this has never happened in Bangladesh.... Earlier, they would kill one or two people," Prime Minister Sheikh Hasina said.
Bangladesh, nine-tenths of whose 16 crore people practise Islam, is seen as a country of moderate Muslims but has witnessed growing radicalisation in recent years. Extremists have killed at least 46 secular bloggers, gays, foreigners and minority religious leaders in the past couple of years.
Unlike these attacks on individuals by machete-wielding zealots, last night's siege marked the chilling advent of organised terror in Bangladesh. Prime Minister Narendra Modi on Saturday called Hasina and promised help in fighting terror, as did Japan and the US.
The Islamic State also posted pictures of five fighters it said were involved in the siege.
"Let the people of the crusader countries know that there is no safety for them as long as their aircraft are killing Muslims," it said in a statement.
The hostage crisis began around 8.40pm yesterday when security guards noticed several gunmen outside a medical centre and approached them, prompting them to run into the packed café.
Till now, the eatery was regarded as a tranquil place that was safe to visit in an increasingly dangerous city.
Some 30-odd army commandos stormed the café Sunday morning, with hundreds of uniformed men standing guard outside and armoured vehicles driving onto the café's lawns.
"The lawn was one of the reasons that foreign visitors preferred the café - their children could play there," said a regular at Holey.
Residents of the neighbourhood said they saw snipers take up position on balconies and rooftops. Fire-fighters were on stand-by.
Security agencies had blocked the cable TV network in the area since last night to deny the terrorists access to live coverage and, therefore, to knowledge of troop movements. Internet access had been curbed to cut the gunmen off from the outside world.
The whole of Gulshan had been barricaded to ordinary people since last night, preventing many residents from returning home from Id shopping. "Vehicles carrying soldiers began arriving around 5.30am. The troops took position in and around the café," said a policeman.
Reuters quoted Gowher Rizvi, an adviser to Hasina, as saying the forces had initially tried to negotiate with the gunmen.
Brigadier Chowdhury said the army had led the assault, Operation Thunderbolt, with the air force and the navy joining in.
Details are under wraps, with sources merely revealing that the commandos approached the café from various directions and took the terrorists by surprise. The hostages began stepping out a little after 8am.
Blasts, however, could be heard till 9.35am, which a security analyst attributed to the "defusing of explosives" the terrorists had brought in.
Police claim to have seized a huge amount of explosives, semi-automatic AK-22 rifles, pistols and sharp weapons.
Many in Dhaka believe the toll may be higher. Rumours were swirling that the gunmen had dumped several bodies into a nearby lake.
Some accused the authorities of a delayed operation. "If an operation can be completed in just over 10 minutes, why didn't they start it last night? The loss of life could have been minimised," said a businessman.
He questioned the competence of the Rapid Action Battalion and Border Guard Bangladesh, which had dealt with the crisis till the army arrived.
But a security analyst said: "An operation like this needed planning and proper knowledge of the layout inside.... A hurried intervention could have lengthened the list of casualties."
Conversation in Dhaka today centred on the surprise attack in one of the capital's highest-security areas, and the brutality of the killings during the holy month of Ramazan. Hasina too broached the subject.
"They (the terrorists) should have been in their Tarawih prayers at that time, during the month of Ramazan, a month of self-restraint," she said.
"What kind of Muslims are they who don't offer prayers and instead do such a thing?" Hasina said, declaring two days of national mourning.