There are two possible solutions to this problem.
First of all, though, it's not possible to modify the on-screen keyboard and have cursor keys. However, if you press *and hold* the screen at approximately the location you want the cursor to go an on-screen pop-up magnifying glass will appear that will enable you to position the cursor much more easily and on a letter-by-letter basis. It's also helpful in letting you select words too because, having positioned the cursor in a word, you get some pop-up text that will enable you to select just that word or the entire page - or you can drag the 'pins' at either end of the selected text to increase or decrease the selection.
If you really want cursor keys then one option is to use an external keyboard - such as Apple's keyboard dock or Bluetooth keyboard, both of which have cursor keys on them.
Tim