I've been looking at the dagger-alef (U+0670  ARABIC LETTER SUPERSCRIPT ALEF) in order to figure out how to implement correct behavior in fonts. Although there are exceptions, the dagger-alef is not generally written in modern texts, it is primarily used in classical texts.

Regarding the dagger-alef, Fahmy1says:

"It is considered a separate character that appears on its own in cases such as

On the other hand, it is considered a mark on top of the underlying character in cases such as

If the dagger alif is a mark, its positioning on the character is similar to that of the short vowels."

In the case of dagger-alef as a "separate character", dagger-alef should be placed above a space or even above U+00A0  NO-BREAK SPACE2. See dagger-alef above the space in the sample below:

In general, if dagger-alef is above a "tooth" then the anchor point for the dagger-alef should be centered above the tooth (there are some who disagree with this and believe the dagger-alef should be slightly to the left of the "tooth"). The example below shows the dagger-alef above the tooth of both the initial and medial yeh:

If a consonant has a vowel above it (such as the fatha) followed by a dagger-alef, then a kashida (U+0640  ARABIC TATWEEL) can be inserted before the dagger-alef. This places the dagger-alef after the consonant (rather than above the fatha) but before the next consonant. See dagger-alef between the meem and the waw below:

1 Fahmy, Hossam A. H. 2006, Vol 27, No 2. AlQalam for typesetting traditional Arabic texts. TUGBoat. p. 164 ( http://www.tug.org/tugboat/tb27-2/tb87fahmy.pdf)
2 Unfortunately, Microsoft Word does not support the dagger-alef on a space. However, LibreOffice does support it. When developing a font, U+0020 and U+00A0 must support putting a combining mark (such as U+0670) above the space.