The paper assesses the levels and determinants of economic inequality in 12 Arab countries using harmonized household survey micro-data. It focuses on the sources of rural–urban, as well as metropolitan–nonmetropolitan, inequalities. The analysis finds moderate inequality levels, with Gini coefficient for the distribution of per capita total expenditures ranging between 30.7 in Libya and 45 in Mauritania. Differences in households’ endowments such as demographic composition, human capital, and community characteristics appear as the main sources of the urban–rural welfare gap. Inequality between metropolitan and nonmetropolitan regions is resulting mainly from differences in returns to human capital.