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The direction of arrival (DOA) estimation problem in the presence of signal and noise coupling in antenna arrays is addressed. In many applications, such as smart antenna, radar and navigation systems, the noise coupling between different antenna array elements is often neglected in the antenna modeling and thus, may significantly degrade the system performance. Utilizing the exact noise covariance matrix enables to achieve high-performance source localization by taking into account the colored properties of the array noise. The noise covariance matrix of the antenna array consists of both the external noise sources from sky, ground and interference, and the internal noise sources from amplifiers and loads. Computation of the internal noise covariance matrix is implemented using the theory of noisy linear networks combined with the method of moments (MoM). Based on this noise statistical analysis, a new four-port antenna element consisting of two orthogonal loops is proposed with enhanced source localization performance. The maximum likelihood (ML) estimator and the Cramer-Rao lower bound (CRLB) for DOA estimation in the presence of noise coupling is derived. Simulation results show that the noise coupling in antenna arrays may substantially alter the source localization performance. The performance of a mismatched ML estimator based on a model which ignores the noise coupling shows significant performance degradation due to noise coupling. These results demonstrate the importance of the noise coupling modeling in the DOA estimation algorithms.