Spurs' chances of finishing fourth and qualifying for next season's Champions League could hinge on the result of the White Hart Lane showdown.
A win would narrow the deficit to Manchester City, who currently occupy fourth spot, to one point, but a defeat would leave Tottenham with a mountain to climb, especially with their next two games coming against Chelsea and Manchester United.
Shoulder to shoulder: Tottenham's Tom Huddlestone and Arsenal defender William Gallas face each other in October
Arsenal, meanwhile, are third and gunning for a first title since 2004 with five matches left to play.
Whatever the result, Redknapp is delighted with the progress made by his team, who are almost certain to finish higher than last season's eighth place.
And Redknapp reckons Spurs could finally get the better of their neighbours in the league next season.
'When everyone is fit we have a squad that can match Arsenal,' said Redknapp, who has a lengthy injury list to contend with.
'At the start of the year, who would have seen us fourth, compared to the likes of Liverpool and Man City with their resources? It shows the massive strides we've made.
'It's been massive progress this year. We're much closer to Arsenal now and we'll be even closer next year. We've got players who are improving and can only get better.'
Blow: Kranjcar was injured during the FA Cup semi-final defeat
Redknapp has selection problems in midfield with anchorman WilsonPalacios suspended, winger Aaron Lennon not fit to return from a groinproblem and Niko Kranjcar on crutches after injuring his ankle inSunday's defeat to Portsmouth in the FA Cup semi-final.England midfielder Jermaine Jenas (groin) is also still missing.
Redknapp will also have to lift his squad after the surprise 2-0 defeat to Pompey at Wembley, which left Spurs without a chance of claiming any silverware this season.
But he does not see confidence or fatigue - the semi-final having gone to extra time - being major problems.
'It's a London derby, we'll find the energy,' Redknapp said. 'We'll be OK, no excuses. We are in great form with one league defeat in 10.
Confident: Harry Redknapp
'People always pickup on the negatives, we had a bad game on Sunday and it didn't go ourway, but it was just one of those days.
'There's nothing we can do about it now. You put that behind you, pick yourself up, brush yourself down and start all over again.
'You can't keep looking back at what happened. This is another game and the adrenalin of a London derby will carry the players through whether they are tired or not.'
Spurs have a tough finish and after matches against the current top three they still have to travel to Eastlands to play in-form City.
Redknapp makes Roberto Mancini's side the team to beat in the battle for fourth but believes it is still a four-horse race, with Liverpool and Aston Villa involved.
'City are obviously favourites, there's no doubt about that, but it's still all to play for. If we can win tomorrow, we're right in it again and City have some tough games too,' he said.
'Villa are not out of it, Liverpool can win all their games and be back in it. It's all about who can win their games. You can never tell.
'We have the top three in the country on the spin, which is amazing really, but we look forward to it.
'We have something to play for and, at the start of the season, we would have all been delighted if we were fighting for fourth spot at this stage.'
Centre-half and captain Ledley King trained today and could come into contention after being sidelined since February with a nagging thigh injury.
If King does not make it, Redknapp will continue with Michael Dawson and Sebastien Bassong at the heart of the defence.
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