Whole Group vs. Small Group

So I've been doing some assessing as we've finished up our second unit of reading. And I'm noticing something. About half of my class don't know their letters. And then the ones that do know their letters don't seem to know how to put them together to sound out words. And then I have about 4 students who seem to be ready to read. So what is a girl to do? I realized today when we were doing a worksheet from our reading series about blending words was completely pointless for my kids that don't know their letters at all. I have one kid that when I call on him, his response is "I wasn't raising my hand." I promptly told him that it didn't matter if he had his hand up or not. I'm starting to think I need to restructure some things. Part of my problem is I have 6 ELL students who are not in my room for the hour I teach most of my phonics. Luckily most of them are starting to stay all day and I'll be able to some small group work with them in the afternoon. I say all this to say, I need some help or some ideas. How do you deal with such wide discrepancies in your class? Do you do a lot of whole group instruction or mostly small group instruction? I've been working on my literacy and math centers and they are getting better. I wasn't thinking the kids were ready for a rotation where they go to two centers but maybe they are. Then my next question is what are some strategies you use for working on letter identification and blending? I just bought Deanna Jump's guided reading kit and I'm excited about using it. Any advice would be appreciated or just hearing what you do.