Musharraf, on a visit through Asia, arrived in Manila late on Monday from India and was given a military welcome on Tuesday at the Malacanang presidential palace ahead of his talks with Arroyo.
Musharraf is to address a joint session of the Philippine Congress later in the day. Arroyo said she compared notes with Musharraf on their respective governments' campaigns against "terrorism".
"He believes, as much as I do, that when we fight terrorism, there is the military aspect and then there's the socio-cultural aspect," Arroyo said.
"So on the military aspect, we agreed to enhance our intelligence exchange," Arroyo said. "It's very very important in the world of international terrorism."
Arroyo said her national security adviser Norberto Gonzales was to work closely with Pakistan's Inter-Services Intelligence (ISI), which has been tracking down key operatives of the Taliban after it was toppled by US forces in 2001.
Gonzales is tentatively scheduled to meet ISI officials in June.
"He believes, as much as I do, that when we fight terrorism, there is the military aspect and then there's the socio-cultural aspect"
Pakistan abandoned the Taliban in the aftermath of the 11 September 2001 attacks in the United States. The Taliban had previously sheltered Usama bin Ladin's network.
Arroyo said the Philippines and Pakistan would also work together in addressing the root causes of terrorism through enhancing "inter-faith leadership dialogue" to moderate teachings in Islamic schools or madrassas.
The Philippines has been struggling with a decades-old Muslim separatist movement in the southern island of Mindanao.
It has opened peace talks with the 12,000-strong Moro Islamic Liberation Front (MILF), but US military advisers are helping it fight the Abu Sayyaf, a small group of al-Qaida-linked fighters.
Key al-Qaida suspects are believed to have once used the southern Philippines as a training base.
Musharraf and Arroyo also witnessed the signing of a memorandum of understanding that will serve as a "legal framework to facilitate cooperation and inter-operability between the security, intelligence and law enforcement agencies of the two countries".
The Philippines has been fighting
a Muslim separatist movement
The agreement was signed by Philippine Interior Secretary Angelo Reyes and Pakistan Foreign Secretary Riaz Khan.
Musharraf is the first Pakistani leader to visit the Philippines. He will fly to Indonesia on Wednesday after his three-day state visit to the Philippines.