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You are right that they are in rebuilding phase which is tough for team with such high expectations. Xabi Alonso has to win games and he builds team because if they start losing he could quickly be fired. You are also right that real test will be how they perform against big rivals like Barcelona and Atletico Madrid as those matches will truly show how much team has improved. For now they are doing well enough to give them time they need to get better.
I don't understand the pity narrative we are trying to give Real Madrid. They are not the first team to get a coach replacement, Barcelona did and it work very well. In fact, releasing Xavi from Barcelona and been replace by Ansi Flick was the best decision they made before last season kicked off. The only better league they couldn't win was the Champions League and the club world cup but they did better thany expectations were as Real Madrid was dealing with injuries here and there.
Any team can rebuild and do better, the team that used that as an excuse are the ones when the pattern isn't working they plan and that's what Real Madrid fans are trying to portray. The was same Xabi that had good run in Leverkusen before coming here. The problem might not be Xabi strategy, it is from the players that are executing the plans. They are not connected like before and the team is too careful trying to avoid anything that can lead them to a loss.