Foreign Minister David Levy and Papal Nuncio Archbishop Andrea di Montezemolo signed an agreement yesterday that Montezemolo described as an important step in the process of normalizing relations between Israel and the Holy See.

"We have waited for this moment - a message of belief, cooperation and understanding between religions," Levy told guests at the signing ceremony.

The agreement, which deals with the legal status of Catholic Church institutions in this country, is part of the Fundamental Agreement between Israel and the Holy See, signed by the two in December 1993. It would, said Montezemolo, provide a legal basis for the operation of the many Catholic convents, monasteries, schools and other institutions operating under Israeli jurisdiction.

"There are a number of Cathodic institutions working m Israel for the benefit of society. This gives them legal rights, such as the right to own property and appear in court," the papal nuncio said.

According to the agreement, which Levy described as "short, but complex," the Catholic Church and its institutions in Israel are to have a legal status similar to that of voluntary organizations. The institutions are to be listed in a special registry which is to be added to the agreement itself. Other institutions may be added as needed.

The registry includes the Catholic Church itself, the Catholic patriarchates, papal orders and other Church bodies.

All the Church bodies listed in the registry are to maintain their internal autonomy, and their-internal affairs - including disputes between them - are to be handled by Church authorities according to canon law. In their dealings with non-Church bodies, however, they are to be subject to Israeli law, and can sue and be sued in Israeli courts.

According to the Foreign Ministry, the agreement does not grant immunity to the Church, but rather autonomy to handle their own internal affairs. However, the ministry added, for the execution of the agreement it will be necessary for the Knesset to pass appropriate legislation.

This leaves one major area of negotiation to be concluded, that regarding the financial relations between the two sides.

Such an agreement would determine whether, for example, an institution such as Jerusalem's Notre Dame Center, which has been classified as a hotel by the Jerusalem Municipality, and as a monastery by Vatican representatives, would be liable for local property taxes, or whether equipment contributed from abroad for Church institutions would be exempt from customs duty.

Montezemolo answered the perennial question of when the pope would visit Israel by saying the pontiff "has it in his heart, but not in his calendar." He added that at one point the pope told him that the visit to the Holy Land was "in my calendar, but without a date."