Armed police swarmed on a street in Walton following reports a man armed with a gun was making threats.
Officers responded to the incident on Kiddman Street at around 9.55pm on Monday night.
A home was searched, leading to the discovery of a handgun and ammunition.
Cannabis was also found at the property.
A 39-year-old man, of no fixed address, was arrested on suspicion of making threats to kill.
A 58-year-old man from Liverpool was arrested on suspicion of possession of a firearm and possession of cannabis.
An investigation is underway and anyone with information is asked to contact Merseyside Police .
Detective Inspector Paul Speight said: "The recovery of a firearm is always a positive result and means that it can no longer be used to cause fear or violence to our communities.
"I would like to encourage the public to keep giving us information on the use or storage of firearms so we can continue to take action.
"Individuals involved in serious and organised crime have no regard for the rest of our communities and we remain vigilant and committed to pursuing them and putting them behind bars."
Anyone with information on the use or storage of firearms is asked to contact police via Twitter (@MerPolCC), by calling 101 or contacting Crimestoppers , anonymously, on 0800 555 111.
