I included werewolves in a game, unsuspecting villagers who turned as the full moon (Mannslib actually) rose on the sky. I had a progress tracker which allowed the werewolves to grow and become more powerful and frenzied at certain points of time, but the growing took a few moments so I had rally steps each time they grew. It allowed the player characters to rest, get some quick first aid in and prepare to continue to fight. It worked like a charm. This I used at the end of the round each time, but it would probably work as well after a werewolf turn or something.
Problem with doing it in the middle of a roundand resuming there after the rally step would be to remember where on the initiative track you were, sometimes rally steps takes a bit of time, another problem is that during rally steps the player characters may opt to try to increase their initiative. What happends if they increase an initiative token up over the current initiative? Do they loose that turn?
When I've stopped the encounter for a rally step in the middle of the initiative order I've allways started over from the top initiative when we resumed the encounter. As the step is about everyone taking a quick break. So starting over feels both smoother and more logical to me. It also encourages the player characters to try to increase their initiative, to get to go earlier.
Often though, rally steps are initiated by "outside" events, like reinforcements arriving, a change of the scene or similar happenings and I genereally track those things at the end of a round using a progress tracker, so mostly it happends between rounds.