Hart has spent the last five games on the City bench after he was dropped following a string of error-strewn performances, but he will replace Costel Pantilimon in goal for Wednesday's Champions League Group D clash at the Etihad Stadium.
And Steele, who worked with Hart between 2007 and 2008, says the recent international break came at a good time for the 26-year-old.
Steele told Sky Sports News: "Nobody will be hurt more than Joe at being left out. He's been playing in that team for two-and-a-half years so his pride will have been hurt.
"But he'll have got over that and he'll have been greatly encouraged by last week. He got away from his club set-up and had to concentrate on the England set-up.
"He got great support from the England manager and players, and he's now got a manager at Manchester City who's saying he's still very much a part of what they're looking to do.
"They had a great result on the weekend but Joe's going in on Wednesday night to play in the Champions League; what greater challenge could he have?
"All he's got to do is go there and perform, and lay his performance down and say to the manager: 'Okay, it's your decision now.' That's all he can do."
Steele believes that it's important for both Manchester City and England that Hart rediscovers his best form.
"He's a good, strong goalkeeper, mentally, physically and tactically," said Steele, who is currently goalkeeping coach at Derby County.
"He's got everything about him and we should be backing him because we need Joe Hart, not just for his and Manchester City's sake but for England's sake.
"We've got this huge tournament coming and we need Joe back where we know he can be and playing at the top level."