Fabrizio Miccoli converted a penalty on the stroke of half-time to put Palermo ahead and Franco Brienza made it 2-0 immediately after the break as they threatened to hand another defeat to struggling Milan and their coach Massimiliano Allegri.
But Milan suddenly reacted with Riccardo Montolivo pulling one back after 69 minutes before the 20-year-old El Shaarawy rescued a point with 10 minutes left, denying 17th-placed Palermo a second win in 10 games.
Milan have 11 points from 10 games and lie 11th, 14 behind unbeaten leaders Juventus, while Palermo have eight.
Miccoli was a constant menace for Milan in the first half as he dragged a shot wide of the goal, skimmed the crossbar following a bad back-pass and curled a free kick narrowly past the post.
It was no surprise when Palermo's playmaker put them ahead from a penalty awarded after an Ignazio Abate handball.
Milan's situation worsened two minutes into the second half when Brienza scored with a low, curling left-foot shot from just outside the area which was misjudged by goalkeeper Marco Amelia.
As the media began sharpening their knives again for Allegri, the coach changed the face of the game by bringing on Bojan Krkic and Giampaolo Pazzini.
Milan suddenly took control with Krkic in a central role and Montolivo pulled one back with a deflected shot.
The visitors continued to dominate and El Shaarawy, the bright spot of an otherwise turbulent season, fired a deserved equaliser 11 minutes later after Samir Ujkani could only parry a Milan shot.
