Motivated by the human hearing sense we devise a computational model suitable for the localization of many sources in stereo signals, and apply this to the separation of sound sources. The method employs spatial cues in order to resolve high-frequency phase ambiguities. More specifically we use relationships between the short time Fourier transforms (STFT) of the two signals in order to estimate the two most important spatial cues, namely time differences (TD) and level differences (LD) between the sensors. By using models of both free field wave propagation and head related transfer functions (HRTF), these cues are combined to form estimates of spatial parameters such as the directions of arrival (DOA). The theory is validated with the help of the experimental results presented in the paper.