They can work together. Arabs play the good cop with possibility of normalisation and trade, Shia Iran play the bad cop. China can be the police chief coordinate the two.The way Iran has become the primary defender of the Palestinians, it is slowly becoming a hero in the eyes of the muslims all over the world, who are deeply emotional about the Palestinian cause and also the defense of Al Aqsa Mosque.
So, Shia Iran which is not even Arab is becoming the "Defender of the Faith" while supposed Sunni superpowers like Turkey stay on the side lines and supposed leader of the Arabs or Muslims in general Saudi Arabia is seen as too much into Israeli pocket.
This is a huge loss of credibility for Arab countries like Saudi Arabia or Egypt.
So, can they continue to stay on the sidelines like this while Iran gains huge prestige?
I don't think so. I think sooner or later they will have to do something kinetic against Israel as well to maintain their credibility among the muslim and Arab population.