UPDATE - 5:02 p.m. ET: Subsequent reporting from Fox News indicates the suspect is also dead.
The officers were responding to reports of a stabbing when shots rang out.
A home the suspected gunman was believed to be inside caught fire and was quickly engulfed by flames.
Dozens of police officers, including Honolulu Police Chief Susan Ballard, were seen arriving at the hospital en masse as the patients were transported away from the Diamond Head scene.
The fire spread to several other residences, destroying seven homes and leaving multiple others with fire or smoke damage, according to Honolulu fire officials.
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Hawaii News Now said it had obtained court documents showing the landlord had secured an eviction order from a court to remove Hanel from the property on January 17 and that these documents contained complaints that Hanel had no rental agreement, had caused damage to the property, and had refused to leave despite demands multiple occasions.
Police have closed several streets nearby, and the public has been asked to avoid the area.
Attorney Jonathan Burge, who represented Hanel in a number of disputes with neighbors, said his client was a native of the Czech Republic who used Czech interpreters in court. "This is an unprecedented tragedy for not only the City and County of Honolulu but the entire state of Hawaii".
Inna Simonson, a neighbour, said she recalled seeing regular police at the home where the suspect lived.
"First responders are still at the scene and it will likely take days to process the crime scene, including the recovery of any remains", she said.
The suspect then fired at a second group of officers, killing Kalama, she said.
Governor David Ige tweeted, "Our entire state mourns the loss of two Honolulu Police officers killed in the line of duty this morning".