The former Australia coach joined Oman boss Carlos Queiroz in criticising the just-concluded round of qualifiers, which also saw Qatar claim a berth at the tournament in the United States, Canada and Mexico.
"I'm extremely proud of the boys, especially after the way the format of the competition has been," Arnold said after his side's 0-0 draw with Saudi Arabia in Jeddah left Iraq second in Group B behind Herve Renard's team.
"It's no coincidence that the team in each group that had the six-day break qualified.
"I've never seen anything in my coaching career with this type of format. When I was with Australia, we were all told these playoffs would be at a neutral venue.
"It's the same as in the other group with Qatar getting through after six days off and both with hometown support."
Favourable schedules
Saudi Arabia and Qatar were awarded the hosting rights for the two three-team groups played during the current international window by the Asian Football Confederation, with both nations' teams granted favourable schedules as a result.
Iraq and Indonesia, who finished third in Group B, had only three days' recovery between their two matches in Jeddah, while the United Arab Emirates and Oman had similar schedules in Doha. Saudi Arabia and Qatar, meanwhile, had six days' rest.
Former Real Madrid and Portugal coach Queiroz had previously raised the issue prior to his Oman team's 0-0 draw with the Qataris in Doha last Wednesday.
Qatar's 2-1 win over the UAE on Tuesday meant the Omanis were eliminated from the qualifiers, finishing bottom of Group A.
While Saudi Arabia and Qatar claimed the automatic places at the finals, runners-up Iraq and the UAE will meet next month in a two-legged clash to determine who advances to the intercontinental playoffs in March for another World Cup spot.
"The players have given me everything that they had," said Arnold. "They ended up with four points, we didn't concede a goal in this tournament, but we are still in it.
"All the Iraqi media and fans need to stay positive because we are through to the next phase with games in November, so World Cup qualification goes on.
"I'm sorry to the Iraqi fans but they've got to understand we're still in it. We have to stay positive."