Sources close to Blues have confirmed that "serious conversations" have taken place between the two clubs regarding a possible deal for Dann and Jerome.
But no fee has been agreed for the duo and "negotiations are continuing."
Birmingham are determined to make sure they receive the best possible price for Dann who is regarded as one of the best young centre-backs in the country.
He made the move from Coventry to St Andrew's two summers ago and formed an impressive partnership with Roger Johnson who has also been linked with several clubs.
Dann's absence during the second half of last season with a hamstring injury suffered in the Carling Cup semi-final against West Ham was a key reason for City losing their Barclays Premier League status.
If he leaves, it will be another major player leaving Birmingham with last season's leading scorer Craig Gardner poised to move to Sunderland in a £5million switch.
Jerome was linked with a £4million move to Stoke during the January transfer window but no deal materialised.
He has been with Blues for five years since moving from Cardiff and was their top scorer in 2009-2010 with 11 Premier League goals.
But last season he often operated as the lone frontrunner as injuries deprived Blues of other strikers and he went 25 league games without a goal from November. His last league goal was against Stoke in a 3-2 defeat at the Britannia Stadium.