Having lost six of their last nine games in all competitions, a visit from Pep Guardiola's side represented a tough test for the under-fire Gunners.
But having fallen behind to goals from first Leroy Sane and then Sergio Aguero, they twice drew level through Theo Walcott and Shkodran Mustafi for a 2-2 draw.
Welbeck told Sky Sports 1: "We showed character but I think we have to look at the performance and see where we conceded the goals.
"At this point of the season and the position we're at, we know it's not good enough for us and it wouldn't be good for us to lose three points again.
"We dropped two and we've got to improve for next time.
"It's two attacking teams who want to play with the ball.
"It was a good one for the neutrals to watch but both teams wanted to get three points."