"What I heard during my meeting with the president has reassured me and given us hope for the future," al-Baz said after meeting Arafat on Thursday for more than two hours.
"We hope that for its part Israel will also follow its commitments so that we can reach a compromise," he said.
Egypt has been deploying renewed efforts lately to broker a truce by Palestinian resistance groups, but the visit to Israel and the occupied territories 10 days ago of Egyptian Foreign Minister Ahmad Mahir failed to yield a breakthrough.
Mahir's visit to Jerusalem ended in humiliation when he was assaulted by Palestinians during a visit to Jerusalem's Al-Aqsa mosque compound. The minister was briefly treated in hospital before returning to Cairo.
A round of talks in the Egyptian capital last month failed to produce an agreement between Palestinian factions to suspend their attacks against Israeli targets.
After his talks with Arafat, al-Baz made no reference to ongoing truce efforts but said Egypt was "consulting the Palestinian leadership on means of finding a way out of this situation and avoiding the consequences of an impasse in the peace process."