About 700 young people gathered yesterday at Carter Barron Amphitheater in Rock Creek Park for free entertainment, free refreshments, free balloons, free T-shirts and free advice--to stay away from drugs and alcohol.

The rally, sponsored by the city, was designed to address the nationwide problem of alcohol and drug abuse among teen-agers. A University of Michigan study last year found that two-thirds of all graduating high school seniors acknowledged some illicit drug use.

So mixed in with the day's lighter events--for instance, a soul-funk band called "Side by Side" made up of policemen who performed a creditable rendition of singer Rick James' "Super Freak", the bass player with a police revolver on his hip--was a more serious message.

"The message is supposed to be subtle," said Mirita Kizzie, director of the rally. "We want them to know who we are and what we are trying to do."

But many teen-agers and young adults in the audience--some of them frustrated and jobless--said they were skeptical of what the program could accomplish and that they believed the city had more pressing issues to address, particularly the issue of unemployment.

When Mayor Marion Barry welcomed the audience to the rally, he was met with shouts of "jobs."

"Some of you young people have to take all this very seriously," Barry said. "Drugs are no good. Alcohol is no good. . . . Don't blow it." Then Barry went on to describe his summer youth employment program, which he said will provide 20,000 jobs this year.

Robert Wilkerson, a 22-year-old truck driver, said he was impressed with neither Barry's claims for the summer jobs program nor the rally.

"He shouldn't bring it up, if he ain't going to explain it to these kids," Wilkerson said of Barry's jobs program. "Why doesn't he explain why there aren't more jobs."

Lalicia Hall, 19, said that if organizers believe "T-shirts and balloons are going to make people think twice about drug and alcohol abuse, they are very sadly mistaken.

"As long as there is poverty and as long there are no jobs, people are always going to turn to alcohol and drugs," she said. "It's their only way to escape." Hall said she thought the money for the rally should have been spent on housing instead.

Alyce Gullatte, administrator of the city's Alcohol and Drug Abuse Services Administration, strongly defended the rally as the kickoff of a citywide campaign to educate the public about drug and alcohol abuse.

She said the rally at Carter Barron chiefly served three purposes: to demonstrate that the city cares about the problem, to show people they have a choice and don't have to use drugs as a matter of course, and to enlist young people's help in stemming abuse.