McLeish has a sizeable warchest with which to strengthen his St Andrew's squad this summer - and is ready to spend £8million on Reds forward Babel, who is likely to see who is appointed as Rafa Benitez's successor at Anfield before making a decision on his future.
Babel fell out of favour under Benitez on Merseyside, but if the cash-strapped Reds accept an offer from Blues, the Dutch winger could well be interested in a move to the Midlands following last season's impressive campaign.
McLeish, meanwhile, is also tracking highly-rated Hamilton midfielder McArthur - but faces competition from Wigan, Leeds, Cardiff and Rangers.
Wigan had been the favourites to sign the 22-year-old having signed his former Hamilton team-mate James McCarthy last summer.
But his agent Willie McKay said: "There are a few clubs who have made their interest known to Hamilton, and we're waiting to see what happens next." Palermo striker Miccoli, however, is McLeish's main target.
Birmingham have already had an initial approach for Miccoli rejected and they hope to tempt Palermo into selling the 30-year-old by offering £4million, claims the Daily Mail.