The Read-Aloud Handbook has long been a staple for families who want practical advice about why and how to read together, and it has terrific lists of books for kids of all ages.
For detailed practical pointers on reading with young children, Susan Marx and Barbara Kasok have written Help Me Get Ready to Read. They describe about 275 titles that work particularly well with kids in their first five years. They also highlight six books with activities that model getting into stories: Blue Goose, Hooray for Fish!, One Duck Stuck, The Snowy Day, Sheep in a Jeep, and Puffins Climb, Penguins Rhyme.
For Sheep in a Jeep, they suggest you first talk about the title, then read the book aloud, pausing to talk about action words. You can ask kids to make predictions about the story, and listen for rhyming words. "Say and clap the rhyming words with me--leap, jeep. (2 claps)." You can point to where the words are on the page, and pause to have them point to where sentences begin and end. You can have kids chant, "J is for Jeep /j//j//j/."
For "Follow-Up Fun," kids can pretend to ride in a jeep, sing "Baa, Baa, Black Sheep," make a sign, and read more books about animals--including Sheep Take a Hike. And for the kids' responses, Kasok and Marx offer "Positive Parenting Praise!": "Good job telling about the jeep." See readaloudguide.com for information on the book and the workshops they offer.