Pepe was sent off at Elland Road on Sunday in the goalless draw after butting heads with Leeds’ Ezgjan Alioski, and he will be banned for the next three Premier League games.
Arteta labelled the Ivorian’s actions “unacceptable”, but he started him against Molde in the Europa League on Thursday.
Pepe repaid his manager’s faith by scoring as Arsenal ran out 3-0 winners to qualify top of Group B for the knockout stages of the Europa League.
And Arteta said: “I am really pleased. Obviously after the disappointment, something negative, you want to see a reaction and to stand out really quickly.
“I could see from the first minute, from his body language, that he was ready to act. I think he had a great performance.
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“He scored a goal, he could have scored another one or two. He created some great moments in the game and worked really hard for the team. I really liked it. I am really pleased with that.”
Pepe has struggled at times in an Arsenal shirt, but he showed flashes of what he is capable of against Molde.
The winger was a constant threat all night, hitting the woodwork too, and Arteta says this must be the standard for him going forward.
“We all know where his level is and all the time the question is how often he can get to that level - and how he contributes to other aspects of the game,” he added.
“Today is the example. That should be the level that he needs to hit and from there he needs to keep improving, because he is capable of doing it and you can see that every time he gets in those positions, in the final third, he is a real threat and a really difficult player to control.
“He can come with his feet, he can go inside, outside, he can shoot and create crosses. He can go in behind you as well. That’s what we expect from him.”
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