The centre-back had been in outstanding form for the Baggies before breaking his ankle while playing for the Republic of Ireland in September.
After undergoing surgery, O’Shea was initially ruled out for between four and six months.
But in November, Ismael said he felt the defender could return earlier – with the boss describing the 22-year-old as a ‘warrior’.
And now the head coach has revealed O’Shea is close to returning to first-team training.
“It looks very good,” Ismael said when asked for an update on the Dublin-born star.
“If everything goes right, he could be back in training in January.
“Dara will be like a new player for us.
“He looks very good, so hopefully in two or three weeks he can be back in the squad.”
While O’Shea will be like a new signing, Ismael has made it clear he wants to bring in a new centre-forward when the transfer window opens – with the Baggies having lacked a cutting edge this season.
The boss said he is ‘carefully confident’ he can bring in that forward early next month.
And he revealed he also said one or two players could leave The Hawthorns.
“I expect something incoming and outgoing,” he said.
“At the minute we don’t really need to speak about that (outgoings).
“The key players will stay with us.
“The other thing is that it’s the same in January – some players will want to play more and look at other possibilities.
“I think it’s more the type of player we are talking about.”
Albion have a host of talented youngsters on the fringes of the first-team who are likely to interest a host of clubs if they are made available for loan.
The likes of Alex Palmer, Rayhaan Tulloch and Caleb Taylor would all generate significant interest from teams lower down the pyramid.
But Ismael says he wants to focus on incomings before deciding who to let leave on loan.
“We will see – we need to assess the situation step-by-step,” he said.
“The first thing is we want to bring someone in. This is our first focus.
“As soon as we can get what we want we go from there to the next step.”
Ismael will spend Christmas Day with his wife and two daughters who have flown over from Germany.
And he revealed Albion’s game against Derby being moved from Boxing Day to December 27 has allowed him to give the players Christmas Day off.
“I think the good thing is that the schedule moved the game from Boxing Day to Monday,” the boss added.
“So it’s given us time – we’ve trained all the days so far very intensively but we knew this and we can give the 25th free for the guys to celebrate properly with their family.
“Christmas is important, an important time of the year. You have to spend time with the family, to see the children and to celebrate together.”