If you're putting negative voltage on an Arduino input pin, that won't work. You will need to
rectify it first. But, I think you'll have trouble. You mention max V diff. of .7V, so I infer that your peak +V is .35V. A diode typically has a forward voltage drop of .7V, so there goes your whole signal.
It is true that once you've rectified it, you can use a capacitor to filter and get closer to DC, but your voltage will still have ripples.
More description of what it is, functionally, you're trying to do, would likely help here. Since you mention using square wave instead, it would seem you're generating the sine wave as well. What is it that's generating the signal?