The Spaniard captained the Gunners to two FA Cups as a player, and has been working under Pep Guardiola at Manchester City since moving into coaching after his retirement in 2016.
He is one of 12 candidates being considered for the vacancy at the Emirates, according to the Sun.
Arteta is keen to move back to Arsenal and City are understood to be willing to let him hold talks with their Premier League rivals, although they are unlikely to sanction a departure before the two teams face off in the Premier League on Sunday.
But a source at Man City has told the newspaper that the Spaniard won’t be rushed into a decision.
“Mikel wants the job but wants to know what is on offer and guarantees from them,” the source said.
“He will then speak to the club. Nothing is going to happen before the end of this week from what we can tell.
“Mikel is conflicted because of his relationship with Pep and feeling for City after the years there.
“He has been excellent since he got here and there is a feeling he is going to be a top manager one day.”
Freddie Ljungberg has taken over on a temporary basis since Unai Emery was sacked at the end of November.
The Swede notched his first victory when Arsenal beat West Ham 3-1 on Monday evening, but the Gunners remain down in ninth place and seven points outside the Champions League places.
Arsenal travel to Standard Liege to complete their Europa League group stage campaign on Thursday, before hosting City on Sunday.
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