Thousands of Israelis protested in pouring rain in a Tel Aviv square Saturday to urge their new unity government to "talk peace with the PLO now."

Prime Minister Yitzhak Shamir and Labor party leader Shimon Peres both vowed their coalition formed last Thursday would refuse to deal with the Palestine Liberation Organization, which Israel has long regarded as a terrorist group bent on its destruction."The parties participating in this government are formally and officially opposed to any participation of the PLO in negotiations with us," Shamir told Israel radio.

But some members of Labor took part in the mass demonstration along with delegates of the leftist Citizens Rights Movement (CRM), Shinui and Mapam parties.

Shamir said earlier Saturday his new cabinet supported elections for Palestinians in the occupied West Bank and Gaza Strip.

CRM leader Shulamit Aloni and Victor Shemtov of Mapam, members of the tiny opposition in Israel's 12th parliament, urged the government to recognize that the PLO had taken significant steps by accepting Israel and renouncing terrorism.

"The whole world heard and only we did not hear and only we continue to . . . fear the thing we requested all these years," said a prominent demonstrator who addressed the cheering crowd.

Despite the PLO's diplomatic gains, Shamir has not changed his view that the only way to solve the conflict is through direct talks with Arab states, senior aide Yossi Ahimeir said.

"We are sure that sooner or later the world and especially the United States will wake up from its dream about the moderate PLO and it will be clear the PLO is still the same PLO and Arafat is the same terrorist leader," Ahimeir told Reuters.

Clarifying Shamir's earlier remarks that his new cabinet favors the election of Palestinian leaders in occupied territories, Ahimeir said Shamir only supported such a poll after negotiations with neighboring Arab countries, in accordance with the 1978 Camp David Peace Accords.

"The elections will happen after a long process of negotiations between Israel and a Jordanian-Palestinian delegation and after they will accept the scheme of autonomy," Ahimeir said.