Explanation:

- The Diwan-i-Arz was an important administrative department in the Delhi Sultanate, mainly dealing with military affairs.

- Balban (Option 1): He was a powerful Sultan but did not create the Diwan-i-Arz.

- Iltutmish (Option 2): He strengthened administration but isn't known for creating this department.

- Alauddin Khilji (Option 3): Famous for his market reforms and military changes, but not for creating Diwan-i-Arz.

- Firoz Tughlaq (Option 4): Known for public works but not for this department.

- The Diwan-i-Arz was actually created by Balban's predecessor, Iltutmish, who founded and organized this department to manage military recruitment and administration.

Correct Answer: Option 2 — Iltutmish created the Diwan-i-Arz.