Cottagers boss Arvelo Arbeloa, who has replaced Marco Silva at Craven Cottage, has made recruiting young Real Madrid talent a priority as he begins his first season in charge. The former Real defender previously worked with both Garcia and Palacios during his time in the club's youth setup and is eager to reunite with them in west London.
Talks between Fulham and Real Madrid are understood to be at an advanced stage for both players, although neither deal has yet been finalized. Garcia and Palacios are currently being assessed by returning Real Madrid manager Jose Mourinho during pre-season before final decisions are made on their futures.
Garcia has emerged as Fulham's primary attacking target, with reports suggesting a transfer could be worth more than 30 million euros if the 22-year-old opts to make the move. Despite impressing at Madrid, the striker faces stiff competition for regular minutes, and the Spanish giants could be willing to sanction a sale after significant spending during the transfer window.
The forward is under contract until 2030 and featured in 39 matches during the 2025-26 campaign, scoring eight goals despite often being used from the bench.
Palacios is also high on Arbeloa's wishlist. The 21-year-old midfielder has similarly found first-team opportunities limited in Madrid's crowded midfield, making a move to the Premier League an attractive option.
The youngster made seven senior appearances last season while also starring for Real Madrid Castilla, where he scored 15 goals in 32 matches.
Should both transfers be completed, Arbeloa would secure two players whose development he closely oversaw in Madrid, providing Fulham with youthful additions as they look to challenge for European qualification in the coming seasons.
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Real Madrid have been dealt an early setback ahead of the new season after defender Raul Asencio suffered a muscle injury during pre-season training.
Trent Alexander-Arnold produced his best performance of Real Madrid's pre-season campaign as he inspired a convincing 4-1 win over Leganes, showing he is ready to fight for his place following the arrival of Denzel Dumfries.
Karim Adeyemi has said joining Barcelona was an easy decision after receiving a call from head coach Hansi Flick, insisting he never needed convincing to complete his dream move to the Spanish champions.
