My 5 year old is THIS close to reading. He gets the basic gist, can sound things out well, but struggles with paying attention long enough to do so on words he doesn't already recognize or that are too long. He has a fair number of easy sight words under his belt. Things like "up" and "is" and "and" are pretty well integrated. Unfortunately, he is completely uninterested in books at his level.
The books he wants to read, of course, are his sister's Goosebumps series, which were popular with her during the "spooky halloween" stint. He wants spooky books, too! We didn't have any spooky books at an appropriate level. Or even mildly spooky books. Or even a book about vampires. So I looked around online and found these easy-to-read spooky tales and ordered a few from amazon, but they were still beyond him.
Finally, after struggling all weekend on 3 pages of the level 2 Star Wars book that he was enthralled with (he loves those droids... and really all robots), he gave in and let me try easier books with him but he wants to pick them. Does he pick them in order? Noooooo, that would be too easy! Anyway, I got him to a point that I can work with him on it, at least. In order to give him some success with reading, I decided I'd start with reviewing the harder words on flash cards. Many of these he could say on the first guess, and others were harder for him to decipher. After adding each word, I had him go through all the previous words he had done, pointing to each word as he said it, until we had all the tricky words practiced multiple times. Next, I planned to have him read the book, but he kept getting caught on a few of the words. Instead of just pushing through, I thought maybe doing something with a bit of kinesthetic sense added in would help him to remember the words more easily. So, I came up with the idea to have him act out each word after saying it. I held all the cards myself and would show him one and he had to say the word and then act it out. Of course, this lead to giggling by both of us and I think he had a great time with his final practice for the words. Some of the words (like pond) were harder to act out than others, but that just really added to the creativity and fun. It also made sure he knew what words like "trot" meant, since it's not a word that comes up in our daily lives too much. I think this would also work great in a classroom, and could even be fun into the upper elementary grades for spelling or vocabulary words.
When we finally read the book, he flew right through it, only getting mildly stuck once. WOOT!