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In this paper, we present a novel semi-passive radio-frequency identification (RFID) system for accurate indoor localization. The system is composed of a standard ultra high frequency (UHF) ISO-18000-6C compliant RFID reader, a set of standard passive RFID tags whose locations are known, and a newly developed tag-like RFID component, which is attached to the items that need to be localized. The new semi-passive component, referred to as sensatag (sense-a-tag), has a dual functionality: it can sense and decode communication between the reader and standard tags in its proximity, and can communicate with the reader like standard tags using backscatter modulation. Based on the information conveyed by the sensatags to the reader, localization algorithms based on binary sensor principles can be developed. We conduct a number of experiments in a laboratory to quantify the performance of our system, including two real applications, one finding the exact placement of items on shelves, and the other estimating the direction of item movement.