The 22-year-old Barca academy graduate, whose contract runs until June 2015, is being groomed as the successor to Xavi in central midfield but is said to be frustrated at a lack of playing time and has attracted the attention of some of Europe's wealthiest clubs.
While still not the finished article, he has the same ability as Xavi, who turned 33 in January, to dictate play in the centre, is blessed with superb distribution and close-control skills, is a tenacious tackler and has a burst of pace that can take him gliding past a marker.
As he showed against Italy, he also has the eye for goal of a Cesc Fabregas or a Frank Lampard.
He scored what is known as the perfect hat-trick: right foot, left foot and header, adding to the stunning free kick he netted in the final against Switzerland when Spain won the Under-21 championships in Denmark in 2011.
Their performance in Israel, and Thiago's in particular, drew widespread praise.
"Spain U21s were too much," Manchester United defender Rio Ferdinand wrote on his Twitter feed.
"Thiago wants the ball under pressure, he demands it anywhere. We need to produce that kind of mentality in our kids," added the former England international.
A clause in Thiago's Barca contract based on the number of appearances he makes per season means he could leave for 18 million euros this summer.
Club team mate Gerard Pique, who is with the Spain squad at the Confederations Cup in Brazil, said it was up to Barcelona to convince the player that he was already at the ideal place for his development.
"It's a job for the technical secretary now and there is that possibility that he could leave for 18 million," Pique told radio station Onda Cero on Tuesday.
"The most important thing is to make him see that there is no better place than Barcelona football club," he added.
"Players of the calibre of Xavi, who also play in his position, had patience and in the end defined an era.
"I know that he (Thiago) has a lot of quality and he could be a starter for any team in Europe.
"We have the players that we have but I think in the end he will realise because he is an intelligent player."
Born in Bari, Italy, Thiago is the son of former Brazil midfielder Mazinho, who played in the 1994 World Cup-winning side, and has a younger brother Rafinha, also a midfielder, in the Barca B team.
Thiago made 15 starts in La Liga as Barca won the title last season, two appearances in the Champions League and seven in the King's Cup. He has also played three times for the senior Spain side but missed out on a place at the Confederations Cup.
One weakness he needs to iron out is an occasional tendency to dither on the ball and he was partly to blame for Malaga's opening goal in a 2-2 King's Cup quarter-final first leg draw at the Nou Camp in January.
He demonstrated his maturity in frankly discussing the error at a subsequent news conference and said he would not let it check his progress.
"We have a very integrated style and we trust in it but sometimes a mistake can happen in a matter of seconds and it was my turn," he said.
"The page has to be turned. That little error is annoying but my progress and my desire to play are the same. The confidence in me is growing every day."
- Sports & Recreation