I'm not sure what to say to help really. You have used all the ideas I would use. Perhaps use robot talk a fair bit to get him to hear sounds in words. 'Please put your c oa t on' and that sort of thing. I'm surprised he is repeating phase 2 to help with this. Makes no sense to me at all. If he knows all the letter sounds from phase 2, then he could easily move on to learning the phase 3 ones while he practises the blending and segmenting. Once this all gets boring and tedious for your son, you will be in grave danger of putting him off reading and books for ever.