In order to calculate fault currents in distribution systems properly, the value of the arc resistance at the fault location must be known in advance. Since the fault current depends on the arc resistance which is itself a non-linear function of the fault current, the fundamental question is how to calculate the arc resistance and the fault current at the fault location simultaneously and accurately. In this paper a new solution for the above defined problem by using an iterative procedure is given and thoroughly tested. A new method for calculating short circuit currents in medium voltage distribution networks, based on the iterative hybrid compensation short circuit method and a new formula for arc resistance is presented. By this the influence of dispersed generators is particularly investigated. The new method calculates short circuit currents and arc resistance simultaneously. Results of fault analysis and arc resistance calculation in the IEEE-34 distribution network with/without distributed generator are presented and discussed.