Would Daggers be relevant with 1-2 range?

There's a two-fold problem. First, dagger BSTs are low. Second, ORKO is a priority in the meta and the only dagger unit that pulls consistent ORKOs is Kagero, who is pretty rare and completely ineffective against non-infantry units.

With Bow users, you at least have two sources of Brave Bow+ and a high enough damage potential plus quad strike potential that multiple archers can be a generalist threat in the arena.

Dual range is an interesting idea; but I don't think it makes them common in the meta. Maybe a brave dagger or a more powerful debuff like causing the target to be unable to move for a turn would do the trick.

The thing is, most daggers are only good in player phase. I like using Felicia because she is a great anti-mage unit and can handle Nino, Tharja, and Linde with ease. Other dagger units are good for whittling down enemy HP and placing debuffs. Kagero is just insane on player phase because of her weapon. But the same cannot be said when they are AI controlled. No matter who the dagger user is, they will probably be destroyed by any common cavalier and Hector. Being able to attack at close range isn't going to save them. The AI just isn't reliable enough to be using a dagger user on a defense team. If there was an option to assign roles, such as giving an anti-mage unit a command to specifically target mages, that might help out a bit. Of course they can still be baited though

I honestly don't know what could make daggers more compelling for people to use. Infantry mages and archers are being used in arena despite their low BST because of their kill potential.

I would add them if they were more mobile just by their nature of being assassins, but that would require changing already established game mechanics. I guess that at least the introduction of a firesweep dagger could help them.

They are meant to be supportive units (more specifically, poke dmg and debuffers) but the fact that they suffer too many conditions to do so is pretty bad.

First, some daggers require you to initiate the combat to inflict the debuff the ennemy (which still require another ally to finish it after anyways, which could have been in the team instead of the ninja).

Secondly, the point in arena is to win without casualty, so when you debuff/poke an ennemy you're supposed to survive, however with the amount of distant counter units and strong ranged units, it's not easy task to do so. (From there you can understand why Kagero is the only viable ninja, and Poison dagger+ the only dagger usable).

Now, what about windsweep/watersweep to guarantee a safe hit on one of the 2 unit categories and then a decent build in Def or Res to ensure not getting killed on the counter -attack of the other category ? Well, in theory yes, but in practice, you need to have 1 more Spd than the foe. Not an easy task to do, even with the Phantom seal, and then you won't be able to double so the ninja really become a specialized debuffer (you can't take Poison Strike3 to poke since sweeps skills are B skills too).

Thirdly, when you don't aim at applying strong debuff that requires you to initiate the fight, you STILL have to hit the ennemy to apply any debuff. So theorically you can only debuff ranged units on the ennemy phase, unless you get close counter. But still you need to survive the fight to score points in arena, so you need stats more than anything else...

Now, when you combine those 3 problems, you can deduce what is the real issue of the ninjas in the meta : The biggest issue is their low BST. Since they can't use sweep skills effectively (because high Spd and high Def or Res means the other stats are low or average). so you need Fury to help a bit but the 6dmg outcome is too heavy for a multiple-engagement poke unit, and remember, you need to hit, so you need Close counter too... in brief, not even a perfectly spread of stats on a ninja would suffice to make it viable.

As a conclusion, they do need to be able to counter attack at any range, so they should add that to the daggers, Close counter included per default. Or a Firesweep dagger would do the trick too.
(However attacking a 1-2 range would be abusive, it's like saying "no counter attack allowed unless you run Distant/Close counter")