The Spaniard, who spent five years at Anfield before moving to current club Real Madrid, believes that Kenny Dalglish's new signings can help the Reds challenge the very best in England.
"The club has clearly been working in the transfer market and they have brought in a few quality players," said the 29-year-old.
"With those players and more importantly the stability at the club, they will be in the top four at the end of the season - it's where the club belongs."
Alonso was part of Liverpool's famous penalty shoot-out win over AC Milan in the 2005 Champions League final.
"People still talk about that Champions League victory and that's the sort of night Liverpool should be experiencing more regularly," he added.