A massive funeral procession for assassinated Nablus Mayor Zafir Masri today turned into the largest Arab nationalist demonstration ever held in the West Bank, which Israel has occupied since 1967. Mourners defiantly waved banned Palestinian flags and chanted slogans in support of the outlawed Palestine Liberation Organization.

Masri's body, shrouded in a Palestinian flag, was borne for more than two hours in a circuitous, noisy parade through virtually every major street of Nablus before being buried in a martyr's place of honor in front of the city's principal mosque.

At the height of the procession, approximately 15,000 to 20,000 demonstrators filled the city's central business section -- a turnout unmatched during a 19-year period of martial law in which demonstrations, for the most part, have been prohibited by the Israeli occupation authorities.

Before 1967, when the West Bank was under Jordanian administration, such demonstrations were also prohibited by Jordanian security forces.

Masri, who since his appointment as mayor in December had become a symbol of Israeli efforts to revive Middle East peace talks by enhancing self-rule among moderate Palestinians, was shot to death by an unidentified gunman in front of his office yesterday. Two Syrian-backed radical PLO splinter groups have said that they carried out the assassination.

The Israeli Army, which normally maintains a high profile in this fervently nationalistic city, withdrew from most of the center of the city for much of the day and ignored demonstrative violations of occupation law that in normal circumstances would result in immediate arrests.

One Palestinian youth was shot in the head by security forces during a separate demonstration in the nearby Balata Refugee Camp after youths protesting Masri's death stoned an Army patrol. Israeli military authorities said the youth was shot after he jumped on a soldier and tried to choke him.

In another incident, shortly after Masri was buried, security forces fired into the air to disperse a crowd of youths who had stoned a police car.

But for the most part, the demonstration was a peaceful mixture of mourning the death of Nablus' most prominent civic leader and taking advantage of a rare opportunity to vent nationalistic spirit in public places without interference by the occupation authorities.

Emotions began to brim over almost immediately after the casket containing Masri's body was driven by ambulance from Rafidiya Hospital, where he died, to the palatial home of his eldest brother, Hekmat, where thousands of mourners had gathered to begin a funeral procession.

Unexpectedly, Masri's body, shrouded in white, was removed from the coffin, wrapped in a Palestinian flag and taken onto the shoulders of mourners.

"We give our spirit and blood to Abu Hisham!" the crowd chanted in Arabic, referring to Masri, according to Arab tradition, as the father of Hisham, his eldest son.

Faisal Street, a broad boulevard that intersects downtown Nablus, was packed with mourners from one end of the city to the other, many of them waving palm fronds and carrying posters bearing Masri's photograph.

Some youths, their faces masked by checkered Arab headdress, carried the Israeli-banned flag of Palestine, which is rarely displayed openly in the West Bank and which is usually forcibly removed by security forces. A few youths brandished placards bearing the likeness of PLO Chairman Yasser Arafat, which is also prohibited.

A few Israeli soldiers could be seen on rooftops near the main square and on top of one house several hundred yards from the mosque, and one Israeli Army jeep cruised briefly at a discreet distance behind the procession. But for most of the demonstration, the Israelis remained away, leaving traffic control to Arab officers of the local police.

Mournful wailing came from the minarets of all the city's mosques as the procession wound slowly through the city, gradually picking up a nationalistic spirit as more and more young Palestinians joined.

"Fatah! Fatah! PLO! PLO!" many in the crowd chanted. "Long live the PLO!" they chorused, with a spirit of defiance rarely seen since the spirited mayoral campaigns of 1976, when candidates openly linked to the PLO swept elections in the West Bank.

The nationalism, however, was blended with outward grieving, as some mourners climbed onto the wooden pallet on which Masri's body was borne, pulled the shroud from his face and kissed him.

As the procession neared the Haj Mazuz Masri Mosque, the atmosphere turned distinctly more political as many demonstrators chanted, "No Hussein! No Assad! No autonomy! Only the PLO!"

The references were to Jordan's King Hussein, Syrian President Hafez Assad and the limited autonomy plan offered by the Israeli government in the Camp David peace treaty.

Masri's body, which had been returned to the casket, was carried through a crowd so dense that large trees were bent by the press of mourners seeking a glimpse of the slain mayor. Policemen fought off demonstrators trying to climb over the courtyard wall as Masri's shrouded body was removed from the coffin -- in accordance with Moslem custom -- and placed in the crypt.

Across the street from the mosque, in one of the many houses owned by members of the Masri klan -- Nablus' most prominent family -- Hamdi Kanaan, a cousin of the assassinated mayor -- served coffee to several guests and talked about the future of the Palestinians' long struggle for self-determination.

"Both King Hussein and the PLO have failed us, Kanaan said. "It's time for Palestinians in the West Bank to try to do something for themselves now. Zafir tried, and we must try also."