How to process SIGTERM signal gracefully?

First, I'm not certain that you need a second thread to set the shutdown_flag.
Why not set it directly in the SIGTERM handler?

An alternative is to raise an exception from the SIGTERM handler, which will be propagated up the stack. Assuming you've got proper exception handling (e.g. with with/contextmanager and try: ... finally: blocks) this should be a fairly graceful shutdown, similar to if you were to Ctrl+C your program.

Example program signals-test.py:

#!/usr/bin/python

from time import sleep
import signal
import sys


def sigterm_handler(_signo, _stack_frame):
    # Raises SystemExit(0):
    sys.exit(0)

if sys.argv[1] == "handle_signal":
    signal.signal(signal.SIGTERM, sigterm_handler)

try:
    print "Hello"
    i = 0
    while True:
        i += 1
        print "Iteration #%i" % i
        sleep(1)
finally:
    print "Goodbye"

Now see the Ctrl+C behaviour:

$ ./signals-test.py default
Hello
Iteration #1
Iteration #2
Iteration #3
Iteration #4
^CGoodbye
Traceback (most recent call last):
  File "./signals-test.py", line 21, in <module>
    sleep(1)
KeyboardInterrupt
$ echo $?
1

This time I send it SIGTERM after 4 iterations with kill $(ps aux | grep signals-test | awk '/python/ {print $2}'):

$ ./signals-test.py default
Hello
Iteration #1
Iteration #2
Iteration #3
Iteration #4
Terminated
$ echo $?
143

This time I enable my custom SIGTERM handler and send it SIGTERM:

$ ./signals-test.py handle_signal
Hello
Iteration #1
Iteration #2
Iteration #3
Iteration #4
Goodbye
$ echo $?
0

A class based clean to use solution:

import signal
import time

class GracefulKiller:
  kill_now = False
  def __init__(self):
    signal.signal(signal.SIGINT, self.exit_gracefully)
    signal.signal(signal.SIGTERM, self.exit_gracefully)

  def exit_gracefully(self, *args):
    self.kill_now = True

if __name__ == '__main__':
  killer = GracefulKiller()
  while not killer.kill_now:
    time.sleep(1)
    print("doing something in a loop ...")
   
  print("End of the program. I was killed gracefully :)")