It's not easy to predict what will happen with Xabi Alonso's contract.
Apparently, and according to 'As', the club started negotiations with Borussia Dortmund over Ilkay Gündogan. That would mean that Real Madrid's board doesn't believe in a happy ending. But 'Marca' have different reports over Alonso's situation. They believe Xabi let the board know that he wants to stay with the club, and both parts would have started negotiating.
One thing is certain. Xabi Alonso has not signed an extension yet, and he will be free to listen what other teams have to offer in two days, six months before his contract expires. That's not good for Real Madrid, as other teams like Juventus or Chelsea might offer him a bigger contract than Real Madrid.
Still, this situation will soon be cleared, as the player and the club could go public in January to explain how it all has ended.