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[xprt]

If you try to control the microprocessor using the READY line, the timing's pretty tight. The ALE line is high at the begining of each machine cycle. Then you have only about one clock cycle to drop the READY line. You would have to have a pretty fast microcontroller to detect the ALE change and drop the READY line at the right time.

You could use a little helper logic, like a modified version of the data sheet figure 6 circuit for inserting wait states with two flip flops: hold the clear input low to run, high to halt, or pulse it to step one cycle and stop.

Maybe the easiest way with no additional hardware is to drive the microprocessor clock directly from an IO pin on the microcontroller. In normal run mode, just output a square wave to the clock line. When you want to single step, or examine next, etc., you can slow the clock down as much as you like and drive the READY line at just the right time, or just stop the clock all together. This not only saves a crystal, but makes everything synchronous so you have complete control over the timing.

[xprt]

Oops.
I see from the datasheet that the 8085 has a maximum clock period of 2000nS. So you can't just stop the clock. You have to use the READY line.