JERUSALEM, DEC. 30 -- Thousands of Palestinians joined with Israelis and visiting European peace activists today to form a "human chain" around Jerusalem's walled Old City in one of the largest demonstrations for Palestinian rights ever staged in this country. At several points, police broke up crowds by firing water cannons, tear gas and rubber bullets. Israel radio said about 50 people were arrested. As many as 70 were reported to have been treated for injuries at hospitals. Army units blocked access to Jerusalem from the occupied West Bank in a bid to prevent Palestinians there from joining the protest. Nevertheless, Arabs from East Jerusalem and nearby communities flocked to the Old City's stone walls early this afternoon to join hands with Israeli peace activists and about 1,300 demonstrators from Italy, Britain, West Germany and other Western European countries. Police estimated the crowd at 15,000. Organizers said at least 25,000 people, more than two-thirds of them Israelis, turned out. Palestinian activists described it as by far the largest political demonstration staged since the start of the intifada, the two-year-old uprising against Israeli rule in the West Bank and Gaza Strip. It was also one of the few to bring Palestinians and Israelis together in a joint demand for negotiations and an end to the occupation. Although much of the demonstration occurred without incident, police twice charged crowds of mostly Palestinian protesters gathered outside the Herod and Damascus gates of the Old City near downtown East Jerusalem. Water cannons were used to spray blue dye on fleeing crowds, as police fired volleys of tear gas and rubber bullets. The police moved in after some Palestinians chanted slogans supporting the uprising and sang the Palestinian national anthem. Israel radio quoted Palestinian medics as saying that four people had been seriously injured after being struck in the head by rubber bullets and that members of their medic teams had been hit while attempting to evacuate the wounded. Jerusalem police chief David Krauss ordered an investigation into the use of force against the crowds, Israel radio reported. The report said police had been told to take action if nationalist slogans were shouted or Palestinian flags were displayed. The protest was organized by the Israeli "Peace Now" movement, leading Palestinian activists from the occupied terrritories and European peace groups. Its slogan was "1990: Time for Peace." The linking of hands around the Old City was intended as the central event in a three-day program that included seminars, visits to the occupied territories and a march to East Jerusalem from the city's western sector Friday by about 3,000 women. Although Israeli authorities granted a permit for today's demonstration, officials responded harshly. Several Western European peace activists were denied visas or deported after they arrived here this week. Others seeking to visit West Bank locations were blocked and their hotel rooms were searched. The women's march Friday ended with tear-gas volleys, and several women were beaten by police and detained, including an Italian member of the European Parliament. Yossi Ahimier, a top aide to right-wing Prime Minister Yitzhak Shamir, labeled the peace activists "tools of Israel's enemies." Another aide said the participation of Europeans, including some 900 Italians, was equivalent to foreigners' traveling to Italy to march in a demonstration for the terrorist Red Brigades. Jerusalem Mayor Teddy Kollek, a member of the left-wing Labor Party, criticized today's demonstration, maintaining that it would contribute to renewed divisions between the city's Arab and Jewish sectors. The demonstrators' platform endorsed negotiations between Israel and the Palestine Liberation Organization and called for establishment of a Palestinian state alongside Israel. Faisal Husseini, a leading Palestinian activist in East Jerusalem, joined in the organizing group and activists said the event had been endorsed by the PLO's underground leadership in the occupied territories. Husseini maintained that the military had sealed off Jerusalem because authorities wished to dispel the impression that Palestinians were ready to join with Israelis in an appeal for peace. "The authorities try to make another impression -- that there is no way to make peace between Israel and the Palestinians," he said. Many Palestinians at today's demonstration waved olive branches and chanted, "We want peace." With a brilliant blue sky and unseasonably warm temperatures, the demonstration assumed a festive air. Protesters sang and sprawled on the grass near the massive city walls, which stretch for 3 1/2 miles around the ancient city center. Loudspeakers broadcast Israeli pop tunes, American protest songs from the 1960s and Arabic ballads. Although some small gaps appeared in the human chain around the walls, the crowd was packed densely in many areas, with two or three lines of people stretching along the grass and pavement. Blue and white balloons displaying the "Time for Peace" motto dotted the sky, and many Israelis wore white tunics of the Peace Now movement.