We present a theory of magnetic (Ni) and nonmagnetic (Zn) impurities substi
tuted into planar Cu sites in the normal state of underdoped cuprates exhib
iting a spin gap. Both types of impurities induce magnetic moments on neigh
boring Cu sites. In the case of Ni, these moments partially screen the inhe
rent impurity spin, resulting in an effective S = 1/2 moment. The character
istic Kondo scale is found to have a power-law dependence on the coupling c
onstant. We investigate the spatial shape of the impurity-induced spin dens
ity, taking into account the presence of short-ranged AF correlations, and
calculate the O-17 NMR line broadening induced by impurity doping. (C) 1999
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