The defense is a huuuge weak point currently. Fix the defense, and with Fati back and hopefully fit, and we go up a level. Still won't be near the top 3-4 in the world but in time maybe we will get there.
Xavi should man up and do the following. I think some things he knows, but on some, he needs to be more lethal and firm.
1) Stegen has to go. Maybe not next season, but immediately after at the latest. Bring in a keeper that inspires safety and leadership.
2) Alba, Pique, Alves, Lenglet, Garcia, Busquets. By the end of next season, all of them should either be preferably gone or at worst nowhere near the first 11. Some of these should be gone as early as this summer: Alves, Lenglet.
3) If Dembele goes, a replacement is a must. Raphinha is an obvious solution or another direct no-nonsense player who can attack an opponent and destabilize him.
4) By end of next season (pretty impossible earlier than that IMO) the team and Xavi should know if we go for a quick front 3 able to exchange positions very quickly, like a City or Liverpool (in which case you can do well with a false 9 type in the mold of a Gabi Jesus, Foden, or Diego Jota), or for a more conservative front 3 like Lucho or Rijkaard Barcelona. If it's the latter, an elite striker has to be acquired.
5) Once the critical moves are done (about 4-5 inspired transfers), in no way should you relax and fill the squad with filler and/or mentally inferior players. To compete with the best, you need around 18 players who can step in at any point no matter the opponent.
1), 2), and 3) are absolutely critical and should be addressed as soon as possible. This summer preferably.
4) and 5) are probably 2 seasons away but still very important. Basically ensuring you have a top-class 9 and a squad that is competitive and formed with players who are of close value to each other.