I agree with keeleysam. You may either run the Internet Assistant located in Macintosh HD > Programs > Service Programs > Assistants > Configure Internet (literal translation of the path in OS 9, the path may have changed since OS 8.5, which your iMac has installed). There are illustrated instructions for this procedure online which you could use, minus the provider specific stuff (
Text 1,
Link 2).
Or you could just browse the relevant settings and tinker with the configurations. To access them, click the Apple symbol in the menu bar and select Control Panels. Search for the following items (sorry I have no MacOS 8.5 here for an exact description):
PPP or Remote Access, Internet, DialAssist and Modem
During the dialing procedure a window showing the status pops up. Whenever the modem connection is in use, the menu bar apple will switch to a telephone pole symbol circa once per second.
Anyway you will need the usual informations from your provider (dial number, username/password and maybe more settings) so don't try anything in case you don't haven't them yet.
It is possible to use external USB modems, just be sure they are supported (check the list in the Modem control panel or ask your vendor about MacOS Classic compatibility). But you don't you have any specific indication of a hardware failure, right?