。
She was holding the baby in her arms.
Literal
She [topic-は] baby [object-を] arms [in-に] was-holding.
抱く (だく/いだく) means 'to hold' or 'to embrace.' The ~ていた form marks this as an ongoing scene in the past — she was in the middle of holding the baby. This paints a snapshot of a moment: a woman with a baby cradled in her arms.