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The relations between children's views on the permissibility of transgressions involving friends, and their justifications concerning such views, and individual differences in their socio-cognitive and temperamental characteristics and family background were studied in 128 4-year-old children (64 pairs of friends) from a wide range of social backgrounds. Children were interviewed about the permissibility of a series of transgressions between friends, tested on a battery of theory of mind, emotion understanding and language assessments, and filmed as they played with a close friend. Views on permissibility and moral justifications were not closely linked. Justification that took account of interpersonal issues was correlated with understanding of mental states and emotions, with behavioural and temperamental characteristics, and with the quality of interaction between the friends. Views on permissibility were related to understanding of inner states, but also independently to parental education and occupation, with those from more highly educated and professional families more likely to judge transgressions as not permissible. Girls were more likely than boys to justify their views in terms of interpersonal issues, differences not explained by verbal ability differences. Regression analyses highlighted the association between girls’ justifications and their understanding of emotions in close relationships, while those of boys were correlated with their understanding of mental states. The significance of understanding inner states for children's moral sensibility, and the possible social processes implicated, are discussed.