"Obviously [the FA] have majored very largely on Kevin Keegan and they haven't been able, for whatever reason, to persuade him to take the job permanently," Kelly said.
"Whoever comes along now is going to be second choice, that's inevitable. I think Roy Hodgson is well qualified but his experience at Blackburn has dealt him a fatal blow. The best one is Terry Venables but they won't appoint him.
"I think it will be interesting to see what Howard Wilkinson says. He has a very influential role in the long-term coaching and structure of the international scene and I know he'll be saying that for the future, not now but for two or four years on, that they will want to have people available from within the structure of the FA so that they can promote from within."
Asked on BBC Radio 5 Live if the FA was further behind than when Hoddle left, Kelly said: "Possibly. They are back to square one and have to start all over again.
"There is a danger of a conflict of interest here. Noel White [a director of Liverpool] is the chairman of the international committee - and one of the best people qualified, if you leave aside present commitments and club loyalty, is [the Liverpool manager] Gerard Houllier.
"He's been the technical director of France and a successful club manager. Granted he is only a year into doing a good job at Liverpool but he is one of the best qualified.
"There is a danger of a conflict of interest with the chairman of the international committee and there is also a danger of a conflict of interest if they turn to Alex Ferguson. He has the best track record in Britain over the last 10 years. Are any of those people on the committee going to risk being refused by Manchester United, accused of unsettling their season as they are competing on number of fronts? It's a difficult situation all round."
A former England manager, Bobby Robson, believes Keegan may yet solve the FA's dilemma by accepting the national job full-time.
"The FA very much want Kevin, they see him as the saviour in some way," said Robson. "I think they're hoping he will get accustomed to the job, he will like it and maybe he will change his mind in the summer and take it on a full-time basis."
But Robson, whose contract as coach with the Dutch club PSV Eindhoven ends this year, accepts that the current situation is not ideal. He told GMTV: "It's a bit weird. Kevin's the people's choice, the choice of the media, in fact everybody was hoping that he would take it on a full-time basis. It's not a part-time job, you need to be `Johnny on the spot' all the time."
And Robson insisted he had not been asked to become England manager for a second time despite reports that he was on the shortlist for the job.
"The FA haven't been on the phone," he said. "I am coming home at the end of my contract this year and I've always said I would never let my country down, but that situation is completely in the hands of the international committee."
The nation breathed a small sigh of relief yesterday when the sponsors of the England team gave their blessing to Keegan's appointment.
The Nationwide building society, which criticised former coach Glenn Hoddle following his remarks about disabled people, is happy Keegan is at the helm. "We're pleased Kevin is in place," a spokesman said. "We've left the matter in the hands of the FA and are confident they will make the best decision in the circumstances."Reuse content