The Israeli parliament's decision to reaffirm formally the status of Jerusalem as the capital of Israel provoked demonstrations and emergency meetings of opponents yesterday. It did not, however, sway Egyptian President Anwar Sadat from continuing the talks he hopes will lead to peace. p

Sadat, after a top-level strategy meeting on the Jerusalem question at his home in the village of Mit Abul Kom, announced through an aide that he would not suspend talks with Israel on Palestinian autonomy, news agencies reported.

"President Sadat has discussed this subject from all angles and has decided to send a message to Israeli Prime Minister Menachem Begin and will inform his friend, U.S. President Carter," Deputy Foreign Minister Ossama Baz said.

Asked whether Egypt intended to recall its ambassador to Israel, Baz replied, "Nothing of the sort." He declined to reveal the content of the messages to Carter and Begin.

The Palestinian autonomy negotiations were first suspended by Egypt in May to protest the introuduction of the Jerusalem bill in the Israeli parliament. Under pressure from Carter, Egypt agreed to return to the talks, which are scheduled to open Sunday in Alexandria, Egypt, with a full plenary session set for Tuesday.

Egypt maintains that East Jerusalem, occupied by Israel along with other Arab territories during the 1967 war, is part of the West Bank and that's its 110,000 Arabs should participate in the proposed autonomy system.

In Jerusalem, Israeli police broke up a protest by thousands of Arabs yesterday. Police arrested 38 persons. Two policemen were surrounded by a mob of young Arabs and fired their weapons into the air to break clear, witnesses said. No one was hurt.

The demonstration began with a "pray-in" at the Al Aqsa Mosque in the Moslem quarter of the walled Old City, when a crowd of several thousand gathered to protest the Israeli law and to express sympathy with Palestinian hunger strikers in Israeli prisons.

There were no incidents at the mosque, but later another throng of thousands gathered outside Damascus Gate, where they were dispersed after they began to chant anti-Israeli solgans including, "With blood and fire we will liberate Palestine."

The group also called for a general strike Monday to protest conditions in Nafha Prison, where 300 Palestinian inmates entered their 17th day on a hunger strike. Two Arab prisoners have died of lung infections resulting from forced feedings in the prison.

At the United Nations, Pakistan, president of the 40-nation Islamic conference, said it would ask for a meeting of the Security Council on Jerusalem and said it expected the meeting to be held Monday. The Islamic nations' effort was supported by the Palestine Liberation Organization executive committee, which met in emergency session in Beirut.

In other diplomatic reaction to the Jerusalem vote, Turkey recalled its charge d'affaires in Israel for consultations; Canadian External Affairs Minister Mark MacGuigan officially protested the move as "unhelpful to the peace process," and the Saudi Cabinet condemned it as a "piracy that unveils the expansonist and arrogant face of Israel."

Jordan's King Hussein met with leaders of France, West Germany and Austria this week to muster opposition to the Israeli move, but in Jerusalem a spokesman for Begin told Gaston Thorn of Luxembourg, chairman of the Council of Ministers of the Common Market, that "Europe should not interfere, disturb or create obstacles" to the Middle East peace process. n