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Arsenal, 10th, host relegation-threatened Watford on the final day of the season. Arteta's side cannot finish higher than eighth, their lowest position since finishing 12th in 1994-95.
Arteta was appointed in December following the sacking of Unai Emery, taking over from interim coach Freddie Ljungberg when the club were 11th in the standings. But he was unable to bridge the gap to the top four despite guiding them to more wins.
"We haven't been consistent. Obviously there have been a lot of issues in the background, a lot of things that had happened, but at the end of the day we weren't good enough to be with the top teams," Arteta told reporters.
"It shows the big room for improvement and the gap that's still there that has to be minimised really, really quickly in order to be in a good position to challenge those teams.
"It hurts so much (to say that) because when I said it's a beautiful challenge from my side to bring the club into those positions again, I know how difficult it's going to be."
Fourteen draws - the most for Arsenal in a 38-game Premier League campaign - were a major contributing factor to the club's failure to qualify for Europe.
Arteta said finishing eighth and winning the FA Cup next month to qualify for the Europa League would not count as a satisfying end to the season.
"For me, this club deserves the best, and you have to be fighting for every title," he said.
"Obviously after everything that happened, if we're able to win the final and qualify for Europe, we can say that it's OK. But it's not the level for this football club."
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