French authorities are investigating whether a man who appeared in an Islamic State (Isis) video showing the execution of a Palestinian 'spy' is the step-brother of Mohammed Merah, the gunman who in 2012 killed seven people after targeting a Jewish school in Toulouse, southern France.

Reports that the man - who speaks with a southern French accent in the 10-minute video and whose alleged name is Sabri Essid - is linked to Merah has surfaced on French media.

AP reported that both the man and a teenager, who in the video appears to shoot dead the Palestinian from east Jerusalem named as 19-year-old Muhammad Musallam, are both of French nationality.

Essid quit France bound for Syria in 2014. A few months later, Souad Merah, the sister of the Toulouse gunman, also left her homeland with her four children to join her new companion in Turkey, from where they crossed into Syria.

She had already spent time in custody on suspicion that she blessed her brother Mohammed, 23, ahead of the killing spree in which he shot dead three French soldiers and four Jews - three children and a rabbi - in March 2012.

Mohamed Merah
Killer Mohamed Merah in a video frame grab broadcasted by France 2 (Reuters) Screenshot

Merah, who claimed he belonged to al-Qaida, was shot dead by police after a 32-hour standoff athis flat.

The IS video, split in two parts, is extremely sophisticated even by the standards of Isis videos, including re-enactments of key events, zoom-ins and other special effects.

In the first part, the Israeli, Muhammad Musallam, who was captured by the group last month, is shown making a confession published in the group's English-language magazine Dabiq recently. He wears an orange jumpsuit and is sat in what appears to be an office.

Almost certainly under extreme duress, Musallam "claims" to have been recruited by a Jewish neighbour to spy for Mossad and report back on Isis's weapons, bases and Palestinian connections. He also claims his father and brother encouraged him to spy for Israel.

Speaking in Arabic, Musallam says in the first part of the video: "I tell my father and my son: Repent to God. I say to the spies who spy on Islamic State: You will not be successful, they will expose you."

Musallam's family deny he was an Israeli spy, saying he disappeared when supposedly visiting Turkey as a tourist.

An Israeli official said: "He went on his own initiative, without his family's knowledge." Asked if that meant he was denying Musallam was a spy for Israel the official said: "You can understand it that way, yes."

In the second half of the video Musallam is marched into a field by Isis soldiers including the young boy, referred to as one of the Isis "cubs of the caliphate."

An older man speaking in French refers to the kosher supermarket massacre in Paris, saying: "Oh Jews, indeed Allah has gifted us with killing your followers in your own stronghold in France."

After the older man refers to spies and Allah, the boy walks to the front of the hostage and points his gun. He appears to shoot several times, though there has been speculation the trigger may have been pulled by an older figure. The death is shown in extreme close-up and extreme slow-motion.

The video then shows the young boy standing over the dead man, while behind him Jerusalem's skyline appears with a voice-over saying: "And our eyes are on Jerusalem."

Chillingly, the video then again shows the father and brother of the executed Israeli Arab, as well as a number of others described as Mossad spies, apparently showing the location of their homes. The message seems implicit.