Getting established pets used to a new pet is always tough
You say he's never seen a cat before.... you've got the tough job of teaching an older, hyper dog with hunter instincts that those furry creatures running from him are not toys or targets. Cats and dogs definitely have different ideas of "play" and "Godzilla-dog-home-invasion".... it can be tough especially when you have a hyper dog.
Also tough that it's a smaller dog ... terriers were generally bred for catching rats, so it can be REALLY difficult to bring a dog whose first instincts is to chase into a home with cats - whose first instincts is to run. I think the end result is dependent on the individual animals (and I can't stand it when people generalize!), but you might have a tough road in front of you. From all advice and experiences I've known, larger dogs are usually better with animals like cats - while a terrier has an instinct that says "Catch!!" a herding dog has an instinct that says "Protect!"
That said... it might be slow going. Since the cats were there first and are ultimately more breakable than the dog, I'd say start by establishing them as higher in the pack than the dog. (Both my cats outrank my dogs in the pecking order. The cattle dogs have to respect the cats, play nice, and that's the end of it - it's too easy for them to get hurt even accidentally.) Remember that the cats are going to defend themselves -- that's not aggression, that's self-preservation. Feed them first. Acknowledge them first. Dogs have huge respect for pack order, so putting them on the top might teach him some respect.
Are you crating him? We keep our dogs crated overnight while the cats have free run -- it was a great way to get them used to each other. My kitten STILL insists on trying to charge the dogs, but at this point they know there's a boundary where they can't hurt each other, but they can size each other up and get to know each other safely. My boy dog defaults into play mode, too -- and crating was a good way to teach him that he was under NO circumstances to chase the cats or play rough with the cats -- he's still a little nuts and needs to be yelled at every so often, but fortunately there's never been any blood or injuries.
I'd recommend - don't let them loose around each other. Keep the dog leashed when he's not crated - this way you have control over the situation until he learns that chasing the cats is a no-no. Since it doesn't sound like the cats are aggressive toward him, focus on changing his behavior toward them. They probably see him as scary and as a threat now, so it might take a while for them to get comfortable enough around him to accept him.
Hope that helps? I'd definitely, definitely suggest crating -- it's all going to be able controlling him and controlling the situation. Even if it seems mean, he needs to learn the rules of his new house and how to share it.
