Quick Background: I inherited a large sql dump file containing a combination of english and arabic text and (I think) it was originally exported using \'lat
If the document looks right when declared as windows-1256 encoded, then it most probably is windows-1256 encoded. So it was apparently not exported using latin1—which would have been impossible, since latin1 has no Arabic letters.
If this is just about a single file, then the simplest way is to convert it from windows-1256 encoding to utf-8 encoding, using e.g. Notepad++. (Open the file in it, change the encoding, via File format menu, to Arabic, windows-1256. Then select Convert to UTF-8 in the File format menu and do File → Save.)
Windows-1256 and UTF-8 are completely different encodings, so data gets all messed up if you declare windows-1256 data as UTF-8 or vice versa. Only ASCII characters, such as English letters, have the same representation in both encodings.