Budapest - Hungarian police have arrested two men in connection with the fatal shooting of a headmaster and his deputy at a school in Budapest, Hungarian police announced on Thursday.

Hungary was shocked on Wednesday evening by reports that a masked gunman had opened fire at a special-needs school in Budapest, killing the headmaster and his deputy.

The school treasurer and a security guard were subsequently arrested and charged with murder, police said. The two men had been sacked the same day over an embezzlement affair.

The headmaster, Jozsef Takacs, 62, had arranged to meet the treasurer, named as 36-year-old Gabor D, at the school on Wednesday evening. They planned to discuss the technicalities of the treasurer's dismissal.

Takacs took his deputy, Laszlo Papp, 32, with him. The treasurer turned up with the 52-year-old security guard Tamas K.

Papp had a dictaphone in his pocket to record the discussion. The police told the press on Thursday that the whole incident had been recorded, and two shots thirty seconds apart could be heard.

The security guard ran to a nearby greengrocer after the attack saying that a man wearing a mask had opened fire at the school.

The police said the security guard, who has a criminal record for fraud, was wounded during the incident.

He left a trail of blood to the room that had contained the missing server for the school's CCTV system.

Tamas K admitted throwing the computer into the Danube river, but denied being in the room when the shots were fired. (dpa)