The protesters say the unity agreement gives Netanyahu influence over the appointment of judges and legal officials, “crushes democracy” and is meant to rescue him from his legal troubles.
Netanyahu is scheduled to face trial next month on charges of fraud, breach of trust and accepting bribes but continues to deny the charges.
Meanwhile, Gantz had vowed during his campaigns that he would never sit in a government led by a premier facing corruption charges. Although the former general changed his position due to the gravity of the coronavirus crisis, he said.
This decision angered many of his political allies who split from the Blue and White party and will be part of the opposition in the Knesset.
In Tel Aviv, Israeli media reported that about 2,000 demonstrators took part in the protest. They wore face masks and observed social distancing rules in force to fight the spread of the novel coronavirus.
The protesters oppose having Netanyahu as prime minister as long as he is a criminal suspect.
Under the new coalition deal, the two parties will begin advancing legislation to enshrine a rotation agreement for the premiership between the rival leaders.
Far-right Netanyahu, who has been in office for 11 years, will remain in power as PM while Gantz will serve as deputy. The two will switch positions after 18 months.
The deal also requires the approval of both parties on key appointments, including the attorney general and the state prosecutor, granting Netanyahu veto power over the officials who could dictate his future.
It was also decided that Netanyahu could move forward with legislation to annex parts of the West Bank starting July 1, on the condition of Washington’s greenlight, according to the deal.