French forces swooped into Somalia for a rescue mission under the cover of darkness, leading to a fierce gunbattle with militants who officials fear killed the hostage, a French intelligence commando.
The raid Friday night also left a French soldier and 17 Islamist fighters dead, according to the French defense ministry. Another soldier was missing.
French President Francois Hollande acknowledged Saturday that the operation "did not succeed."
He said it led to the "sacrifice" of two French soldiers -- the one killed and other missing -- and "maybe the assassination" of hostage Denis Allex, who was a member of the DGSE, France's equivalent of the CIA.
French Defense Minister Jean-Yves Le Drian also told reporters in Paris on Saturday that "everything leads us to believe that Denis Allex was gunned down by his captors." But the al-Shabaab militia, which is affiliated with al Qaeda, claimed that the hostage is unharmed and being held at a new location.
The militants said in a statement on their Twitter account that they will decide the hostage's fate in the next two days.
The racket of helicopter blades and volleys of gunfire startled Bulo Marer town residents out of their sleep Friday night, when French paratroopers descended on the camp.
Three helicopters initiated a heated gunbattle with captors under the cover of darkness in the town about 75 miles northwest of the capital Mogadishu, eyewitnesses said.
French soldiers leaped from the aircraft to engage the Islamists on the ground.
The French commandos faced strong resistance from the outset, the defense ministry said in a statement. "In the course of the assault, fierce fighting took place."
Al-Shabaab claimed the French soldiers left behind combat gear and a wounded comrade before disengaging.
"The injured French soldier is now in the custody of the Mujahideen," al-Shabaab said.
Allex was abducted on July 14, 2009, while on an official mission in Mogadishu in support of the transitional Somali government, the French defense ministry said.
French media reports suggest that Denis Allex is a pseudonym for the military serviceman.
France said it decided to undertake the rescue attempt after the terror group failed to negotiate for the hostage's release for three and a half years while holding him in inhumane conditions.
"After an intensive search, which I want to salute, the intelligence service detected the location where he was held," Le Drian, France's defense minister, said Saturday. "... France will never withhold any means to gain the release of all of its hostages."
Le Drian expressed his sympathy to the families of the French servicemen lost in the attempted rescue.
The defense minister added that there was no connection between the operation in Somalia and a simultaneous deployment of French troops to Mali.
A French helicopter pilot was fatally wounded during aerial raids in support of Malian forces combating Islamist forces Friday afternoon.