TUNIS, Tunisia — In an unprecedented move toward ending the Middle East's most enduring conflict, Israel and the Palestine Liberation Organization agreed on mutual recognition Thursday, declaring their intent to begin living not as enemies but as neighbors.

The agreement, the most important breakthrough since Israel was fashioned out of the territory of Palestine in 1948, does not assure permanent peace but for the first time underscores both sides' readiness to coexist in a region convulsed by their conflict for most of this century.

PLO Chairman Yasser Arafat, who won his campaign for legitimacy after nearly three decades of being branded an outlaw and a terrorist, called for "a new epoch of peaceful coexistence" with Israel. He reaffirmed, in the strongest terms he has ever used, the recognition of Israel's right to exist in peace and security and the PLO's renunciation of terrorism and other forms of violence.

And for the first time, the PLO said it would convene a session of the Palestine National Council to enshrine those pledges in the PLO covenant.

Arafat, described as solemn after a combative session with his top leadership, signed the recognition agreement shortly before midnight. Israeli Prime Minister Yitzhak Rabin, whose inner Cabinet approved a recognition of the PLO earlier in the day, signed it this morning.

"I feel privileged to have been a part of making history, and I think this is a momentous event for the world, for the Middle East and for all of us," Norwegian Foreign Minister Johan Jorgen Holst said after obtaining Arafat's signature.

Holst had helped negotiate the agreement during several days of intensive negotiations in Paris between the PLO and Israeli officials.

The accord and the accompanying plan for Israeli withdrawal from the Gaza Strip and the West Bank town of Jericho have been a bitter pill for the PLO, which is accepting the possibility of building a Palestinian state in the occupied territories at the expense of its historic claims to the land that is now Israel.

The PLO's de facto foreign minister, Farouk Kaddoumi, who has expressed grave reservations about any move to wind down the intifada --the Palestinian uprising in the Israeli occupied territories--before the Israeli occupation ends did not attend the signing ceremony.