The Thursday talks between president and a top advisor on security reform, Nasir Yusuf, lasted only seconds after both men threw projectiles at each other.
Fatah's Revolutionary Council, a key decision-making body, had been meeting for the first time in three years.
The talks were intended to head off the disintegration of the Palestinian Authority after mass rank-and-file resignations.
Many Fatah members have left the Council over the dominant old guard's alleged misrule and armed anarchy in the streets.
Arafat launched the closed three-day gathering on Wednesday, pledging a fresh Fatah leadership vote and efforts to break a peacemaking stalemate dating back to mid-2000.
But during discussions on Thursday evening, security advisor Yusuf questioned the effectiveness of security forces in the absence of reform – a point of view that irritated the Palestinian leader.
Arafat then threw a microphone at Yusuf, who responded by hurling a pen at the Palestinian president.
The meeting then turned into an exchange of name-calling before both men withdrew from the meeting.
Yusuf has been at odds with Arafat since the president blocked his appointment to the powerful post of minister of interior with authority over the security forces.