If you're on disc one entering the Battle arena, i suggest
Hp plus materia (get your hp to be arnd 5000+ at least, maybe 2 lvl3 HpPlus materia)
CounterAttack (you need to maximise your attacking opportunities)
EnemySkill Materia (Heres where you can pack some high dmg affect-all spells like Trine, Beta and Aqualung, also could save your life if your weapon broke)
Time Materia (for haste)
Heal Materia (unless you already have ribbon, even so, keep some remedy just in case your ribbon breaks or otherwise)
Most importantly, Odin!! :bigbiggri this could save your life at the last moment..
as for weapons and armour, try to find a balance between a high attack, and sufficent materia.
Leave your limit gauge arnd 3/4 full, so you need not spend it on the earlier monsters

Yups! thats the typical strategy i follow