The ordeal came to an end after nearly 10 hours
Footage of the siege
The 32 children and two teachers were taken hostage by their day care centre owner, Jun Ducat, who said he wanted better conditions for the children.
He and at least one other reported hostage-taker gave themselves up.
As some of the children were carried off the bus, a ripple of applause broke out among the crowd around the bus.
The siege unfolded outside Manila City Hall. As the day progressed hundreds of onlookers joined worried parents at the police cordon.
The children had been heading out on a field trip in the morning when the hostage-takers took over the bus and drove it to the city hall.
Police were warned, via cardboard messages in the bus window, that an Uzi assault rifle, a revolver and two grenades, as well as food and water for two days, were on board.
'Political reality'
During the siege, Mr Ducat justified his actions in interviews with the local media.
Using a mobile phone from the bus, he said he had no intention of harming the children.
He insisted his aim was to demand better housing and education for the 145 children at his centre in Manila's poor Tondo district.
"I am so sorry I took these children in a violent action to call the attention of the Filipino people to open their minds to the political reality," he said.
At one point, a local senator, Ramon Revilla, who was reported to have known Mr Ducat, boarded the bus to try to persuade him to surrender.
One boy suffering from a fever was allowed to go free.
Although the bus was parked in the open on a hot day, the children - all aged around five years old - did not appear to be suffering any discomfort.
They waved when the bus curtains were pulled back, and ice cream was seen being delivered to the bus by a policeman.
'Passionate individual'
Mr Ducat agreed to release the children at 1900 (1100GMT), and in return the police agreed to his request that candles be lit and the press be allowed to cover the event.
Although some parents were described as being nearly hysterical with concern as the siege went on, there were a number who were reluctant to damn Mr Ducat.
The children waved to onlookers during the siege
"I know him as a very good man. I know he will not harm my six-year-old daughter," one father, Jojo Abuyan, told Reuters news agency.
"In our own eyes, he's a real hero. He has been helping a lot of people in our community without expecting anything in return," Tondo resident Susan Ferol said.
Manila's Mayor Lito Atienza described Mr Ducat as a "very, very passionate individual who has his own kind of thinking on the solutions to our problems."
But former Manila police chief Senator Alfredo Lim said he had a history of seeking attention.
Mr Ducat is reported to have taken two priests hostage using fake grenades in 1989, in a row over a building contract. No charges were filed.
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The head of a day care centre in Manila, Philippines, has boarded a bus containing 32 children and 2 teachers from the centre and is holding them hostage, demanding better education rights and better housing for them.

Jun Ducat and one other armed individual took the party hostage while they were going out on a trip with the day care centre.  

The bus has been surrounded by armed Filipino police, and through negotiation, the hostage takers agreed to release all the remaining children on the bus at 11:00am BST (10:00am GMT), but the deadline for this has now passed with no sign of the remaining children being released as per the agreement.

One child has been released from the bus and taken away by police and emergency medical services suffering from a high fever.

Mr Ducat said that he had no intention of harming the people aboard the bus in any way, and indeed, the siege has ended with his surrender.

"I accept that I should be jailed because what I did was against the law," Ducat said in an interview with ''Associated Press''. No child was reported physically injured, but they are undergoing medical checkups and psychological debriefings.