Mego Fist Fighter are souped-up Type 2's. As you can see from the illustration above the torso is essentially the same, but the hip unit attaches to the torso via an axle that is connected to the switch in the waist. The armholes are tooled out to accommodate freedom of movement. Note that UK/Palitoy Fist Fighter have a black waist button.
The switch twists the axle which is connected to the arms in a ball-and-socket assembly that enables the arms to swing back and forth in a counter-motion to each other creating the left-right-left fighting action. The twisting of the torso enhances the illusion.
This image is from Mego's U.S. Patent for the Fighting Doll body. Click to view a PDF of the 9 page patent. An interesting historical document.
Because of this ball and socket mechanism the Fist Fighter can pose with his arms in ways an ordinary T2 cannot, either completely outstretched (above) or with hands on hips (below).
These instructions from the back of the British Palitoy card courtesy Brian Heiler also describes that when the left arm is pulled out it disables the arm and the right one throws an up and down Karate-Chop. Does it work? Pretty much. Things tend to turn into a slap fight after awhile, but a little practice helps. The clothes do tend to get in the way.