BVB were in the market for an attacking midfielder due to the €37 million [£31.8m] departure of Mario Gotze to Bayern Munich and both Spain internationals had made their shortlist.
However, Dortmund eventually opted to sign Henrikh Mkhitaryan from Shaktar Donetsk as Isco and Thiago ended up at Real Madrid and Bayern respectively.
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"It was pretty clear that we would not stand a chance in the race for Isco's signature, though."
The 46-year-old coach then went on to discuss potential replacements for Robert Lewandowski, with the Poland international expected to make the move to Bayern in the summer of 2014, and admitted that Porto star Jackson Martinez is one of the players on BVB's list.
"I have a number of attackers in my mind, but I don't know whether we can realistically sign any of them," Klopp continued.
"Jackson has a lot of qualities that make him an interesting striker. He holds up the ball very well, scores a lot of goals and is always available to receive the ball."
The 26-year-old Martinez has a contract with Porto until June 2016.