An incredible piece of play by Patrick Vieira that saw him win a superb tackle then release Henry, led to the opening goal of the game, as the French striker ran onto the pass to finish confidently.
This stopped the Greeks in their tracks as they had opened brightly and only a superb saving tackle by Sol Campbell stopped Michael Konstantinou from going in clear on goal in the sixth minute as the visitors started well.
However, after Henry's 22nd minute strike, Arsenal grew in confidence and the game developed into periods of impressive skill combined with a large majority of niggling fouls, the two sides clearly relishing a chance to settle scores from last week's game in Athens.
Matthew Upson was putting in an impressive showing at the centre of defence, only for Nigerian-born Pole, Emmanuel Olisadebe to sprint past him and into the box where he was brought down.
Angelis Basinas stepped up to take the penalty, only for Wright to show his impressive showing from the spot and diving low to his right, kept Arsenal in the ascendancy.
Panathinaikos eventually did get back into the game five minutes into the second period when Olisadebe got on the end of a poor clearance by Campbell to jink past Laurent and fire the ball past Wright, via a deflection.
However, within seconds The Gunners were back in front, albeit because of a dubious penalty. Sylvain Wiltord burst into the box and fell down under the challenge of Sotirios Kyrgiakos and referee Urs Meier gave a debatable spot-kick with Paulo Sousa's second challenge making the episode seem worse than it was.
Up stepped Henry to glide the ball into the corner of the net and grab the eventual winner for the home side.
Despite late pressure from Panathinaikos, the Arsenal defence stood firm and the result leaves Arsenal level on points with Mallorca who fell to a shock 4-0 home defeat against Schalke.
A loss would have eliminated the Germans from the competition and the Spanish side, with manager Bernd Krauss under pressure from the club directors, started impressively.
Yet it was Schalke that took the lead on the quarter hour as Nico van Hoogdalem got on the end of Ebbe Sand's knockdown in the box to fire home past Carlos Roa.
It went from bad to worse in the 21st minute as Gerald Asamoah was brought down in the box by Miguel Nadal and Tomasz Hajto made it 2-0 from the spot.
Nadal never recovered from the challenge that led to the penalty and was substituted soon after with Fatih Akyel coming on as his replacement.
As if things could not get worse for Krauss, referee Jan Wegereef stunned the Son Moix crowd on the half hour as striker Samuel Eto'o was dismissed for diving in the box, under challenge from Tomasz Waldoch.
It was a brave and highly controversial decision by Wegereef, especially as it was a straight red and Mallorca can count themselves considerably unfortunate, especially already being two goals down.
Although Albert Luque almost got his side back into the game in first half injury time, firing a shot against the bar, Mallorca have been struggling in the league and with confidence low, Schalke took advantage in the second half.
Marc Wilmots could have made the game safe on the hour, but crashed his shot against the post but eventually the visitors did get their third, the powerful Asamoah heading home 13 minutes from time.
Sand rubbed salt into the wounds with the fourth, five minutes from time as he rose to plant his header past Roa, from a superb cross by Michael Buskens.
The result gives Schalke renewed hope in the group, although it is now a three way fight for the second qualification place with Panathinaikos three points ahead of the chasing pack.
Click below for detailed match summaries:
Arsenal 2 Panathinaikos 1
Mallorca 0 Schalke 4
Click here for the exclusive Opta stats on the Arsenal game
