I managed to get this posted on iPhone Central. Hopefully it gets more coverage and noticed by Apple:
Reader Khaled brought to our attention two separate groups, both working at bringing elements of Arabic language functionality to the iPhone. The first, at iPhone Islam, is aiming to bring Arabic character support to the iPhone via a downloadable application (you’ll apparently need Installer.app to do so). Unfortunately, my Arabic’s a little rusty from a couple years of disuse, so you’ll have to visit the site yourself if you want to figure out exactly what procedure you need to follow. The second, more ambitious project, at iFone4Arab.com has as its goal producing a native Arabic interface for the entire iPhone. While they don’t yet have a working version available, you can check out screenshots at their website, or a YouTube video of the interface in action. Pretty cool. We’re sure there will be official Apple Arabic at some point (presumably by the time the phone hits the Middle East), but in the interim, it might be worth checking out one or both of these if you’re in need of Arabic support on your iphone.