Ok, let's go through the wiring.
Battery to starter, large cable - good
Starter to fuse in block # 2 should be at least a 10 ga. wire. OEM is woefully undersized for 30 amps. This wire is always suspect because it has poor quality terminals crimped on it and they are known to get loose or break. They also have a tendency to pop out of the back of the block when you insert the fuse and don't make good contact.
Fuse to amp meter #3. exact same thing as #2.
All current for the tractor except for the starter motor itself goes through these two wires. It would be easy enough to make up a temporary jumper wire with an inline fuse to go from the starter to the back of the key switch, bypassing #2, #3, #5 and the amp meter. For the purposes of testing, you can skip wire #4, just realize that the alternator won't work and you may see the light on the dash come on when in the run position.
At this point you have known good power to the key switch and you can test each position from there. Everything should work with the exception of the alternator. If not, you have a bad switch. Since you could hear arcing sounds, it is very possible the switch is bad.
If the jumper wire solves your problem, I would replace 2, 3, and 5 with good wire and terminals.
A note about the amp meter. Most of them have a shunt internally so that if the meter itself fails it will still pass current through the terminals but the needle won't move. I don't know if these OEM units have that fail safe feature or not.
The clutch switch is inserted in the circuit that goes to the starter relay. It would have no effect on any of the rest of the wiring. If you suspect it, just pull the wires off and connect them together. If that switch fails you get dead silence when the key is turned to start. No click, no nothing.
The biggest deficiency of the whole system (other than wire size and terminal quality) is running all the current for the glow plugs through the key switch. 30 amps is a lot to pass through those little contacts and they arc a little each time they are used. Eventually they wear out. If you loose the contact at terminal 3 then only the glow plugs quit, but if the contact at terminal 1 gets burned, it is game over for all the electrical because everything is downstream of terminal 1.
I hope this helps some and don't be afraid to ask more questions if I confused you.
Once you get this issue sorted out, if you would like we can go over how to install a relay for the glow plugs to save the switch. It is fairly easy and not very expensive.