Heureka!

Finally, we got confirmation: It's working! This could be an elegant, fast and easy solution for everybody who wants/needs to watch divx movies with Arabic, Hebrew, Chinese...etc subtitles on their standalone dvd player.

You need a newer model, preferably one from this list of DIVX (ULTRA) players, but others could work as well, so check it out.

I made a test file you can download here on Rapid share (28MB), burn it to a disk and check whether your dvd player can display emebedded subtitles (press the subtitle button on your remote control). Or you can just make your own test video.

Here is what you do to make your own films with subtitles WITHOUT time-consuming reencoding:

I used the program "AVIAddXSubs" (freeware).
You can download it here. http://www.videohelp.com/tools/AVIAddXSubs
It has a readme.htm that explains how to do it.
It is best to put the video and the .srt subs in one folder, and name them like this: "film.avi" "film-en.srt" "film-ar.srt". You have to choose the correct character set for Arabic/Chinese/Hebrew etc. You might need to adjust the other parameters to have the subtitle show at the right spot in the right size. Maybe you should start with only one embedded subtitle for your first attempt.

It only takes a few minutes to write the DIVX file, depending mainly on the speed of your harddisk. It is not important to have a fast CPU for this!

The great thing about this program is that you don't reencode the video or audio, only the subtitles are converted into (bitmap) divx .xsub format. Therefore, it only takes 3 minutes or so to make a divx file with subs from an avi and .srt. The resulting .divx file is only a few MB larger than the original .avi.

The file can still be played on all kinds of players, software and hardware, but you won't see the subtitles in VLC for example. If your standalone dvd player does not support embedded subtitles, simply don't activate them and it will play just fine. 

On your computer, the only way to see divx embedded subtitles seems to be the installation of the (freeware) DivX player. Whenever you play the .divx (with divx player!), a message should appear in the taskbar that subtitles are available (Divx Menu Navigator). Right-click and activate the arabic subtitle. Again: if you don't see this message and the divx logo in your taskbar, you cannot see the subtitle.

Your feedback is welcome, even if it does not work. Please tell us the brand and model of your dvd player as well. 

Good luck. :-)