Bayer Leverkusen is not a rich club in Germany and Bundesliga, and when Xabi Alonso came to take over a head coach position, they were in trouble and fighted around relegation zone. He helped them to stay in Bundesliga in a first season with them, and in a second position with them he helped them to win Bundesliga title against Bayern Munich with an unbeaten season. That's very impressive.
They played UEFA Europa League final match but failed by a big defeat under Atalanta. Xabi Alonso received many offers from big clubs including Real Madrid but he decided to stay with Bayer Leverkusen at least one more season (this one). Succeed or fail with Bayer Leverkusen this season, with or no titles, Xabi Alonso already made history with this club and he has a solid position in their club hall of fame.
You're right. Although he didn't say no to Real Madrid, at the time they told Ancelotti again. There was speculation at the time that Ancelotti was going to join the Brazilian national team, but he chose to stay at Real Madrid.
I think if Xabi is called up to Real Madrid, he won't hesitate ; he'll go That's something he said a long time ago. However, for the Germans , he's a great figure who achieved something incredible that will go down in Leverkusen history.