Gunfire erupted shortly this evening in Watertown, Mass., where Dzhokhar Tsarnaev, the surviving suspect in the Boston Marathon bombings, was believed to have been spotted by a man checking on his boat.
Dozens of law enforcement officers rushed to secure a perimeter around Franlin Street in Watertown, where residents were immediately warned to stay indoors and "shelter in place."
The developments came just minutes after a press conference by law enforcement officials and Massachusetts Gov. Deval Patrick said a massive dragnet had failed to find the suspect.
George Pizzuto, who lives in the neighborhood where the police activity is centered, said that his friend and neighbor, David Henneberry, discovered a body in his boat and reported it to police around 7 p.m. tonight, just minutes after Patrick said residents could go outside again.
Pizzuto told ABC News that Henneberry went out into his backyard after the lockdown was lifted to get some fresh air.
"He looked and noticed something was off about his boat, so he got his ladder, and he put his ladder up on the side of the boat and climbed up, and then he saw blood on it, and he thought he saw what was a body laying in the boat," Pizzuto said. "So he got out of the boat fast and called police."
He said that Henneberry was being interviewed by police about what he saw, and that power had just been cut to the Henneberry's house.
"That boat's his baby. He takes care of it like you wouldn't believe. And they told him it's all shot up," Pizzuto said. "He's going to be heartbroken."
Erik Thompson, who lives across the street from the Henneberry's home, said he heard gunshots and saw law enforcement rush to the scene.
"There was some gunfire earlier which was almost immediately stopped. People were yelling to cease fire, and it seems to be focused on some homes across the street from where I am, which I think is the western side of the street," Thompson said.
"There's still a significant presence of law enforcement there," he said. "It's like D-Day."
The governor lifted an order that kept people in Watertown, Boston and surrounding suburbs inside all day.
The officials had said at the press conference that they thoroughly searched Watertown and had not found any sign of Tsarnaev.
Earlier in the day, police in took three individuals into custody in connection with the search for Tsarnaev.
Lt. Robert Richard of New Bedford, Mass., said three "college age" individuals were taken in for questioning by the FBI. New Bedford is less than 15 miles north of Dartmouth, Mass., where Tsarnaev attends college.
Following a late-night shootout with police that involved more than 200 rounds of ammunition and explosive devices, Dzhokhar Tsarnaev, 19, abandoned his car and slipped away on foot.
His older brother and alleged accomplice in the bombings, Tamerlan Tsarnaev, 26, was killed in the gunfire. The pair are believed to have dropped two bombs near the finish line of the Boston Marathon Monday, killing three and injuring more than 170.
Massachusetts State Police Superintendent Col. Timothy Alben said at a press conference this afternoon that the Tsarnaev brothers opened fire and threw explosives at cops around 10:30 p.m. Thursday as they fled from Cambridge to Watertown. But he said law enforcement were forced to choose between providing first aid to those in need and securing a perimeter to contain the suspect.
"Unfortunately we did not have enough people to provide first aid" to the injured "and establish a perimeter," the colonel said.
Gov. Deval Patrick ordered everyone in Watertown, Boston and surrounding suburbs to stay indoors, shut down public transportation and taxi service for the day as the search for Tsarnaev proceeded.
Heavily armed officers and military-style vehicles conducted a door-to-door search of Watertown, but the search turned up nothing, Alben said.
Police did find evidence of homemade pipe bombs and a pressure cook at the scene of the shootout, they said.
Shortly after 6 p.m. today, the governor lifted the "shelter in place" order and reopened the city's mass transit system. He asked residents to remain vigilant.
Law enforcement also pulled back its tactical operations, saying that they were confident the neighborhood of Watertown would be safe with added patrols from neighboring communities and the state police.
They said they had chased "various leads" all over Massachusetts, but had not yet apprehended the suspect. They asked the public to continue contributing tips to Tsarnaev's possible location.
"Remember there is still a very very dangerous individual at large, but we feel confident based on what we know of the investigation to that extent, we can return to living our lives. In the areas where the stay-indoors request has been in effect, that request has been lifted, but remain vigilant," Patrick said.
Alben said that he believed Tsarnaev was still in the Boston area, that most of his contacts were in the city and that police were not aware of any vehicle that he may have taken.
Dzhokhar Tsarnaev is believed to be armed with an automatic rifle and a cache of other weapons.
"I'm worried about apprehending this particular subject, he's a very violent and dangerous person," Alben said.
The Tsarnaev brothers are suspected of having placed two bombs near the finish line of the Boston Marathon Monday, killing three and injuring more than 170. There is no known motive for the bombings.
The hunt for the brothers heated up Thursday night after they were reported to have robbed a convenience store, although police said today that the report was false. Police have recovered surveillance video of the Tsarnaevs buying gas in Cambridge.
They are believed, however, to have ambushed and killed MIT security officer Sean Collier as he sat in his patrol car Thursday night.
They later hijacked a Mercedes SUV Thursday night and told the driver that they were the Marathon bombers, police said. The vehicle was spotted by police about 12:50 a.m. today, sparking a chase and gunbattle that included the brothers tossing explosives at the pursuing cops, police said.
Tamerlan Tsarnaev was killed in the gun fight and Dzhokhar Tsarnaev was able to get away, fleeing on foot in Watertown, police said.
According to law enforcement sources and their family, the Tsarnaevs are of Chechen ethnicity but were born in Kyrgystan, and lived in the Russian province of Dagestan before immigrating to the United States.
Beth Israel Hospital described this morning the injuries suffered by a man brought in overnight. They said the patient came in under guard and had suffered blast and shrapnel injuries as well as so many gunshot wounds that caregivers were "unable to count" them.
A second police officer, Richard Donohue Jr., 33, was injured in the firefight and is in critical condition at a hospital.
Tsarnaev's father told ABC News he was worried about his sons when he heard about the bombing, but never imagined they could be involved.
Anzor Tsarnaev directed a message to his boys, saying, "Give up. Give up. You have a bright future ahead of you."
He added, however, that if police killed his son, "then all hell will break loose."
A neighbor of Tsarnaev's said he has been in the country at least since he was 7. A school friend of Tsarnaev's, Sierra Schwartz, told "Good Morning America" the young man "never seemed suspicious or weird or anything."
ABC News' Aaron Katersky contributed to this report.