I am working on a project that will involve AVI M2T PAL files shot on a Sony Z7 at 25fps.
Which is it: AVI or M2T? I assume you mean HDV M2T, but just checking...
What is the best (most efficient and high quality) way to work with both types of formats?
Edit them as they are. They won't get any better from what they already are, so you'll needlessly waste time, space, and quality converting them. Just pick the frame rate/timebase that makes the most sense; it doesn't sound like you've settled on what one of your sources will be, or your output, so you can weigh those into the equation once you get that sorted.
If I convert them to an intermediary codec (in FCP you would convert to Pro Res), which one would you recommend for Premiere Pro?
None; see the above.
I know you can typically work with different video formats on one timeline in Premiere, but perhaps this is too extreme (the difference in FPS)? And I would prefer not to slowdown my workflow while editing (and not have to render more frequently).
Nope; it's not. In Premiere Pro, dropping a video with one frame rate into a sequence with another frame rate is pretty trivial from a computational point of view--it simply plays the file back at its source frame rate. When it comes time for export, those differences will have to be rectified, but that's not a big deal either. There's only so much you can do in your case--you're working with video from two distinctly different video systems that don't have a common factor when it comes to frame rates. Typically, it's better to go to a greater frame rate than a lesser one--Premiere Pro will simply pad/interpolate the required frames to meet the greater frame rate, whereas going to a lower frame rate will involve throwing away frames.
And with a decent computer, you probably won't have to render--at least if all you're talking about is editing. When you start dropping effects--particularly non-accelerated effects--into your sequence, then rendering may become an issue. But with the two video formats you've listed, any system built within recent history (in computer terms) will handle them easily.