Arthur, who is now the Western Australia coach, said if the selectors showed vision, resisted constant changes and retained injured skipper Ricky Ponting at No.3, Australia can become the No.1 team soon.
"As long as Ricky is the best man at No.3 - and I think he is - he should bat there. Yes, he's getting on a bit, but the time he leaves the No.3 position might be the time for him to move on. I don't think that time is right, yet. I still think there is a little way to go for Ricky Ponting in Test cricket," Arthur, who guided the Proteas to the top ranking in 2005, was quoted as saying by the Herald Sun.
Arthur said Australia's selectors must have the courage to pick a unit for the future and then stick with it, as South Africa had from 2006.
"I think if they deem now is the right time to start rebuilding then they can realistically be a force in 18 months and be where they need to be," Arthur said.
He said Western Australia players batsman Shaun Marsh and left-arm spinner Michael Beer should be included.
"They have always hung their hats on Phil Hughes to open, but Shaun Marsh is definitely the player they should be looking at," he said.
"You have to play a spinner in Sydney and there should have been one in Melbourne, to be frank. They have selected Michael Beer and must run with him for a period of time now."
Arthur pointed out that it is Ponting under whose captaincy Australia can steer through a turbulent period before handing over to vice-captain Michael Clarke.
"What Australia needs now is a strong leader," Arthur said. "If they are going to play some youngsters in their batting group then they need experience and Ricky is the man who must lead them."