Under the circumstances of Katrina... Do you think it would be OK to extend our holds in certain situations due to the New Orleans office of the Atlanta Fed being closed if the items are normally routing through New Orleans? We are in Arkansas.

Sections 229.10(c) and 229.12 do not apply to funds deposited by check in a depositary bank in the case of--
(1) An interruption of communications or computer or other equipment facilities;
(2) A suspension of payments by another bank;
(3) A war; or
(4) An emergency condition beyond the control of the depositary bank, if the depositary bank exercises such diligence as the circumstances require.

I suggest you contact your local bankers association and/or local fed bank to get guidance on this issue.

Could the Emergency Condition exception hold be used? (229.13(f)

My opinion is absolutely. See the following link:
http://www.frbservices.org/Retail/pdf/NewOrleansAvailability083005.pdf

Does this mean we can extend our holds by an additional two days?

You most certainly should not assume that the two days mentioned in the Fed's bulletin is in any way related to what you can do with holds. It may be prudent to extend holds on some checks on banks in the affected area. But there is nothing magic about the two days in the bulletin.