When I was involved in Schutzhund many if not most of the club member's had their dogs with Schutzhund titles up to and including Schutzhund III that were also excellent house dogs.

My GSDs are outside 24/7 but I still demand basic manners with me and the rest of the family.

I don't see the Schutzhund training as any conflict in basic manners.

Growing up many hunters wouldn't let their hunting dogs be house pets because "That'll ruin them".

Today many different hunting dogs live in the house.

All of my hunt terriers were house dogs and treated no differently then my ob competition dogs, my show dogs or my "pet" dogs. Bottom line is they were all my pets.

Many of the earth dog people I know also have cats living contently with these evil little bassids.

I would like to 2nd the opinion Betty mentioned that the cats are 'mine!'. That is how I mentally set up my gsd with regard to my 6 yr old daughter. He will tussle vigorously with my coydog, but is so gentle with my daughter no matter how rough she tries to play. It's just another rule in his mind. When she starts to annoy him, he walks away.
I have never trained a dog for competition, but my gsd's prey drive is very intact.

I think a lot of people are approaching this problem backwards. For dogs, cats are to be chased, herded and sometimes even killed. Cats that are dog friendly (like mine) should not be harrassed. There's no need for it. All of my police dogs live with cats. It is intentional because I want them to be ignored by the dog...at home, AND especially on the street. I do regular off leash training at the local animal shelter where there are about 40 stray cats along with oppossums and raccoons who hang around to eat the cat food that the do-gooders leave for the cat colony every day and night.

So far, managing pup and cats has been suggested....along with redirects and rewards. Pups are young and cats are a great distraction. Too much to ask for right now. I suggest you crate the cats next to the pups crate for a while during the night. Let pup get used to the cats presence, (no visual at first, just close enough to smell them. Visual in the crate later) Denying him access to the cats builds his desire. Flood him with their presence. Let him get used to being in close proximity to them. Let them become just another piece of furniture. It's not a guaranteed fix but I've done it a number of times and my police dogs live comfortably with cats. The cats will even become trustful and friendly enough to a tolerant dog to snuggle with the dog and it's not unusual to find them sleeping together.