The Croatia international rejected the advances of the Hammers in favour of a switch to Goodison Park when he left Rangers at the end of January.
And the Toffees have had a great return for the reported £5million fee they paid for the 27-year-old, who has since netted 17 goals for the Merseysiders.
McDonald said: "There was a definite interest there and we did speak to him. Obviously he went to Everton and scored goals and proved he can play in the Premier League.
"When we saw him at Rangers we thought he could score goals in the Premier League and he's proved that. That's Everton's gain."
McDonald admits it was hard to take on a missing out on a player like Jelavic, but his rejection at least allowed the Hammers to bring in Andy Carroll on loan from Liverpool.
He said: "You are always disappointed when you don't get players who come into the Premier League and do well but we got Andy Carroll so there is a little bit of a pay-off there.
"We are pleased with Andy's contribution so far, even though he has got injured. If you don't get one (target) you try and get another."
Don't miss any live and exclusive football coverage this festive season. Click here to visit Sky Sports' Festive Calendar