The COCAE project develops an instrument for localization and identification of radioactive sources. For the localization task it will exploit the Compton scattered photons within its detecting layers. It is based on pixilated Cd(Zn)Te matrices in a stacked configuration. Progress has been achieved in all the components necessary for this technology. CdZnTe crystals have been grown of up to 75mm in diameter. A wafer level pixelization process has been tested and its results will be presented. Very good energy resolution is necessary for the performance of the instrument. For this reason we have investigated planar M-p-n diodes fabricated by using laser-induced solid phase doping and Schottky diodes created by Arion etching of the Cd(Zn)Te surfaces before deposition of Ni electrodes. The energy resolution achieved is better than 1% FWHM @662KeV. The development of a pixel CMOS readout integrated circuit has been undertaken. It outputs in digital format address, energy and time information for the pixels which have collected charge above a given threshold. Simulation studies of the minimum detection limits, of the Compton sequencing algorithms, of the angular resolution and of the reconstruction of the radioactive source position have been performed. Experiments with a precursor setup using an existing hybrid detector are underway.