Ok, tried gifting a city and it worked well enough. Built the city west of Capital, chopped a Library and, while waiting for it to expand its borders, a lighthouse and then gifted it to Arabia. As Arabia does not have The Great Wall, also gifted him an Archer to protect it.
Takes a lot of turns though. In the test game, Arabia is hemmed in by two other civs, limiting their ability to build new cities. Not sure what will happen in the real game?
Saladin may be tech leader. In test game I had to "help" him get Buddhism. I looked in the real game logs but only saw 1 reference to a city being build and that was by Saladin in 2960. Is there a BUG or BUFFY setting you have to turn on to get those messages recorded?
edit -Barb cities spawn all over, but never in the best places. If we can get Iron, we could harvest Barb cities for gold.