Diarra was unable to train with the squad on Monday after picking up a knock in La Liga action at the weekend and Arbeloa had been suffering from a knee problem but Pellegrini has included both in his squad for the match at the Bernabeu.
However, midfielder Guti is still not at full fitness and misses out, Pellegrini told a news conference.
"Guti has an ankle problem that is preventing him from being at 100 percent," the Chilean said.
"Arbeloa is in good condition despite being still in the recovery phase and Lass has no problems."
Real's Kaka will be playing against his former club for the first time since he joined from Milan for around 67 million euros in the close season.
"For me it's the first time in my career that I will play against an ex club," the Brazilian playmaker told a separate news conference.
"It's a new thing for me but I am professional and now I play for Real Madrid and I will give my all."
Real top Group C with two wins out of two and Milan are in third after last month's shock 1-0 home defeat by FC Zurich.
Real's Portuguese forward Cristiano Ronaldo is sidelined with an ankle injury and midfielder Fernando Gago, striker Ruud van Nistelrooy and defender Christoph Metzelder are all out of action with various ailments.
Milan goalkeeper Marco Storari and midfielder Gennaro Gattuso have been ruled out with thigh and knee injuries respectively.
