Blues appeared to be favourites for Belgian international Dembélé's signature but the player's agent has informed McLeish that he has opted against a move to St Andrews.
"Dembélé has got other options and he is choosing another option," the Blues boss has said.
"His representative had told me that. It is a blow because we have worked hard on that one, but that's life."
With regards to the possible signing of Camoranesi, McLeish said: "I have always been a big admirer but negotiations became protracted and I had a further think.
"I decided it was not quite the way forward for Birmingham at this particular time.
"We are looking at one or two things and I'm confident we will have players in by the second game of the season rather than the first one at Sunderland."