President Francois Hollande said the men claimed to be from so-called Islamic State (IS).
Speaking in Saint-Etienne-du-Rouvray, he said the attackers had committed a "cowardly assassination" and France would fight IS "by all means".
The IS-linked Amaq news agency said "two soldiers of the Islamic State" had carried out the attack.
Pope Francis decried the "pain and horror of this absurd violence".
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After criticisms of police shortcomings over the Nice attack on 14 July, French anti-terrorist police moved with commendable speed to close down this hostage situation in a Norman church.
Observers have pointed out that France and other countries are now moving more quickly towards what is called tactical intervention - overwhelming armed force aimed at minimising the period during which terrorists or armed criminals can threaten the public.
The selection of a church by the attackers, whom IS refer to as its "soldiers", crosses a new red line in the grim history of recent attacks on continental Europe. The murder of a defenceless 84-year-old priest in this attack will have further inflamed public opinion.
News that one of the attackers was on the French government's terror watch-list, known as the S list, will prompt many to question its purpose if he can remain at large to carry a knife into a church.