Industrial policy in the Arab world has not enjoyed much success. There is, however, a near consensus in the development community that it is an essential requirement in a world post global financial crisis that clearly revealed the failure of the market, even in the major industrial nations. New industrial policy must be formulated on new and innovative foundations that rest on existing productive capacity in the economy in order to delimit the nature and extent of government intervention, and on the institutional mechanisms to achieve “integrated independence” for the public sector in its relationship with the private sector. In this context, the paper proposes a strategy for Arab industrial policy to deal with two main challenges. First, how is the government to know the overall key inputs required by firms to enable the production of new and advanced products to help diversify the Arab economic base? Second, what are the general principles that ought to lead the process of providing these inputs, particularly in terms of avoiding considerations of political economy alongside attempts at “rentier seeking”? The answer to the first question requires a definition of the elements of industrial policy in terms of content, while the second requires the definition of the institutional mechanisms to manage this policy.