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Binaural sound source localization can be performed by imitation of the fundamental mechanisms of the human auditory system, which is based on the integrated effects of ear, pinnae, head and torso. In particular, two physical cues can be exploited, i.e. the Interaural Time Difference (ITD) and the Interaural Level Difference (ILD). It is known that joint use of ITD and ILD provides good source azimuth estimations. In many practical situations binaural localization has to be performed in closed environments, where the presence of reverberation degrades the performance of available position estimators. In this paper a possible solution to this difficult problem is introduced. The proposed solution is based on proper use of cepstral prefiltering prior to source localization by ITD and ILD. It is shown that cepstrum can help in reducing the effects of reverberation, thus yielding better location estimates.