It is not only the boundaries of Arab American studies that always have been fluid, but also it is the Arab American identity that has been both fluid and ambiguous. In this paper, I examine the Arab American identity and the stages of formation it went through as well as the challenges that faced Arab Americans during their attempts to assimilate into the American culture. Attempts have been made to define Arab American literature and Steven Salaita has broadened the way he defines it to include literature that is not written by Arab American writers. We have to be careful when we come to define Arab American literature to make its boundaries intact and less fluid. However, we should open up new spaces to include more scholarships under the Arab American category to achieve diversity in the field. Therefore, it has become a great challenge for Arab Americans to define their literature. At this point, it is necessary to define some key terms such as “Arab American,” “Arab American Literature,” and “Arab” to clarify the boundaries of Arab Americans' identity and their literature as well. Defining these terms will pave the way for the understanding of Arab Americans and the background they come from which will lead us to know more about the origin of the identity formation dilemma of Americans who come from Arab descent. Being aware of these key concepts about both Arab Americans and Arabs will help explain the complexity and diversity of the field as part and parcel of the American ethnic literature.