City had an early lead through Erling Haaland before Arsenal fought back through goals from Riccardo Calafiori and Gabriel Magalhaes. Arsenal then had Leandro Trossard sent off on halftime.
The Gunners sat deep in the second-half and it wasn't until on 98 minutes that substitute John Stones scrambled home a City equaliser.
Arteta said: "We had a very difficult start in the first 10-15 minutes. We were struggling to control certain spaces and we didn’t have enough ability to get out of the first 25-30 metres of the pitch which meant that we never controlled the game. After that, we started to understand what we had to do, we were much more efficient.
"Obviously, we were thrown into a context that made it almost impossible for 56 minutes, but anyway, we adapted to that context in the best possible way and the way the team competed was just unbelievable. I’m so proud of the team. You can’t be thrown into a more difficult situation against that kind of opponent and the way we handled that. I’m so proud.
"The boys were really gutted. They put their heart and souls into every single action and to be punished in the last minute, they were gutted. They have made another big step today as a team and individually."
On Jurrien Timber and Calafiori, Arteta also said: "Yeah. They haven’t played 90 minutes in this kind of context for sure, but they’re so willing to help the team and we will find solutions.
"He (Calafiori) was great. Again, to have the debutants start a game in the Premier League in this context. He has so much personality and quality, I was really impressed."
On if Arsenal would've won with 11 men, Arteta added: "I don’t know. I have no clue. We would try for sure but what I can tell you, is that 99 times out of 100, if you play 56 minutes against this side with 10 men, you are going to lose and you are going to lose by a lot of goals. We are very proud."