We have made theoretical study of the electronic and magnetic properties of iron clusters encapsulated in carbon nanotubes using density functional theory. We have considered cluster encapsulated inside finite pieces of single wall zigzag nanotubes of indices (11,0) and (10,0). Finite zigzag nanotubes have a peculiar magnetic structure, the ground state is an antiferromagnetic spin singlet S=0. The local spin polarization oscillates along the direction of the nanotubes axis and is small, except at the two ends of the edges of the nanotubes. We have studied the encapsulation of iron atoms and small Fen clusters n = 2,4,8 in a short (10,0) tube. By the constraints imposed by the cylindrical geometry of a narrow nanotubes, we have considered the encapsulation of an isomer of F12 with an elongated structure. We have also considered the encapsulation of the lowest energy, icosahedral structure of Fe12. The free elongated Fe12 isomer presented a strong ferromagnetic spin coupling giving rise to a large magnetic moment. The distortion in the density of state of the iron cluster is much smaller preserving the strong ferromagnetic character. There is some p-d hybridization between the nanotubes and the cluster states, mainly around the Fermilevel. The loweswt unoccupied molecular orbital of the pristine zigzag nanotubes becomes partially occupied due to charge transfer from the cluster to the nanotubes. We have analysed the interplay between the singular magnetic properties of the finite zigzag nanotubes and the large magnetization of the encapsulated iron clusters. The calculations indicated that the magnetism is confined within the iron aggregates, with small reduction of the magnetic moment per atom with respect to the free iron clusters. The magnetic moment per atom result enhanced with respect to those of bulk iron, due to the reduced coordination of the metal atoms. The obtained results were found in good agreement with previously obtained results.