When Lehi exited his tent one morning, he discovered on the ground "a round ball of curious workmanship; and it was of fine brass. And within the ball were two spindles; and the one pointed the way whither we should go into the wilderness" (1 Nephi 16:10). Later in the Book of Mormon, we read that the ball was prepared by the Lord and was called the "Liahona," which is translated as a "compass" (Alma 37:38; see also 2 Nephi 5:12).
Critics were quick to ridicule the Liahona, claiming that the magnetic compass was unknown in 600 B.C. There are several problems with this assumption, however.
As Robert F. Smith points out: "The function of magnetic hematite was well understood in both the Old and New Worlds before Lehi left Jerusalem. Magnetite, or lodestone, is, of course, naturally magnetic iron, and the word magnetite comes from the name of a place in which it was mined in Asia Minor by at least the seventh century B.C., namely Magnesia."
Smith also notes that a non-LDS Mesoamerican specialist, Dr. Michael Coe of Yale University, has suggested that the Olmecs of Veracruz, Mexico, were using magnetite compasses already in the second millennium B.C. "This is based," writes Smith, "on Coe's discovery during excavations at San Lorenzo-Tenochtitlan of a magnetite 'pointer' which appeared to have been 'machined,' and which Coe placed on a cork mat in a bowl of water in a successful test of its function as a true floater-compass."
Secondly, there is no reason to think that the Liahona operated like a magnetic compass. According to the Book of Mormon, directions were given (at least in part) by what was "written" in the ball (1 Nephi 16:26-27). We also read that — unlike a mariner's compass — the Liahona operated according to the power of God and the faith of those wielding the compass (v. 8; 1 Nephi 18:12, 21). Nephi tells us that the directions "given upon the ball" led him to the top of a mountain as well as "the more fertile parts of the wilderness" in his hunt for wild game (1 Nephi 16:13, 30). As Dr. Paul Cheesman once pointed out: "Lehi's 'compass' indicated the directions in which Lehi should go; the mariner's compass only tells the traveler which way is magnetic north" ("Lehi's Journeys," The Book of Mormon: First Nephi, The Doctrinal Foundation  244).
Thirdly, the word "compass" also means "circle" or "round." In the King James Bible, for instance, we read: "And from thence we fetched a compass, and came to Rhegium" (Acts 28:13). The Interlinear Greek-English New Testament renders the passage: "Whence having gone round we arrived at Rhegium." In either case, the Greek perierchomai is interpreted as circle, round or compass. One of the primary definitions of "compass" is round or circular. In fact, the word "compass" seems to be just the word to describe the Liahona, and Joseph Smith obviously used the words from his vocabulary to express the ideas on the plates.
As Dr. Hugh Nibley has observed, the word "compass" has two basic meanings: 1) to move together — always referring to a pair of things in motion; 2) to enclose, embrace, step completely, circle or round. This second definition refers to the motion of making a circle. Either way, the word "compass" could correctly refer to the Liahona because of its round (ball) shape or the motion of the arrows.
Lastly, we find that the Liahona/compass fits neatly into Old World traditions. Nibley shares the findings of one non-LDS scholar who engaged in a study of belomancy, which is "the practice of divination by shooting, tossing, shaking, or otherwise manipulating rods, darts, pointers, or other sticks, all originally derived from arrows."
According to this study, pre-Islamic Arabs consulted the Lord through the tossing, or manipulating of pointers. Thus the Arabs believed that through such divination the Lord instructed his people. The pointers, or arrows, had inscriptions upon them which gave the people their instructions. "The inscriptions on the arrows themselves," notes Nibley, "give top priority to travel. …"
"… the usual thing was to consult the things at a special shrine, though it was common also to take such divination arrows along on the trip in a special container. The message of the arrows, which were mere sticks without heads or feathers, was conveyed by their pointing and especially by the inscriptions that were on them, giving detailed directions as to the journey. (Non-LDS scholar T. Fahd) deserves our thanks for having called attention to this interesting and forgotten gadget in 1958; but how could Joseph Smith know about it in 1829?"