Clarke will return to Anfield for Monday's Barclays Premier League clash for the first time since he and Dalglish parted company with the Reds last summer after 18 months in charge.
He believes Dalglish signings such as Jordan Henderson, Stewart Downing and Jose Enrique are now showing their true worth after initially taking time to settle.
Clarke said: "I'm looking forward to it. I had a great 18 months at Liverpool, I made a lot of friends and I've got a lot of good memories from my time there.
"I liked the passion of the people. They are very fair-minded and honest supporters who wanted their team to be entertaining and do well.
"There was some success. There were two cup final appearances. One was victorious and one was a defeat and, if you add in the semi-final win over Everton, there were three good trips to Wembley for the supporters.
"Supporters enjoy big days out and big occasions and at a big club like Liverpool, you should be competing for all the major honours.
"I'm not surprised now at all some of the younger players are starting to flourish, or some of the more experienced ones that Kenny signed. It can take a period of time for people to settle into a club the size of Liverpool.
"For Stewart Downing to be in the team and Jordan Henderson, as well as Jose Enrique, and doing really well, is good.
"Luis Suarez has really settled into the club now and, if you look at it at this stage, Liverpool are probably playing the best football in the Premier League."