Note: The Jaguar package comes with an OS 9.2.1 disk. I very strongly recommend that you get rid of OS 8.5 and go to 9.2.1. Mac OS 9.2.1 has stability improvements over OS 8.5 (trust me, I used OS 8.5 for about a year when I first got my Bondi Blue iMac) as well as software improvements and enhancements for software compatibility (i.e. iTunes, iMovie for OS 9, Graphing Calculator 1.3, etc.).
I'm sure you know something by now about OS X and partitioning your Hard Drive. In short, all that means is OS X allows you to create N amount of partitions -- divisions of your Hard Drive into alloted capacity sizes -- and thus creates that N number of Hard Drive icons on your Desktop in which the total capacity of each partition is the amount of capacity of your Hard Drive.
Some people tend to partition their Hard Drive into two partitions: One for OS X and one for OS 9 (or more for other OSs). First and foremost: Don't bother doing that crap. By default, OS X is installed into your Hard Drive and inside of your single Hard Drive icon (i.e. one partition -- the whole Hard Drive). All I'm trying to say is: If you want to have a Classic OS (I insist that you use an OS no earlier than 9.2.1 for that) and OS X on your computer at one time, use one partition.
If you have OS 9.2.1 or 9.2.2 available, then proceed as follows:
[1] Back up all your data, including fonts, folders, music, photos, video content, documents, Appleworks, etc. to somewhere.
[2] Grab your OS 9 CD, boot from it, erase your Hard Drive and install OS 9.
[3] Boot into OS 9 and upgrade to 9.2.2. You can find the 9.2.2 update on Apple's website.
[4] Grab your OS X CDs and go straight to install.
[5] Move your backed up data back onto your computer.
Note: During the installation process for OS X, you will not have to worry about partitions, as you already created the one and only partition for your Hard Drive when you installed OS 9. All you will be doing is installing the X operating system onto it. The folder that OS X uses is called "System," so your OS 9 folder (and Applications (OS 9) folder) will not be deleted upon installation.
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But...
IF you can't get "a copy" of OS 9.2.1 or 9.2.2, or OS 9 isn't in your Jaguar package, then proceed as follows:
[1] Back up all your data, including fonts, folders, music, photos, video content, documents, Appleworks, etc. to somewhere.
[2] Grab your OS 8.5 CD, boot from it, erase your Hard Drive and open up the Disk Utility software (I forget the name) from the disk.
[3] Select two partitions - one for Mac OS 8.5 and the other for Mac OS X - so that the partition with OS X takes up at least 75% of the Hard Drive. Then install OS 8.5 on the OS 8.5 partition.
Note: If you have an OS 8.1 CD and not OS 8.5, install OS 8.1, then upgrade to OS 8.5 from an OS 8.5 software package that Apple might have on their website.
[4] Grab your OS X CDs and install OS X on your OS X partition.
[5] Move your backed up data back onto your computer.
In order for Jaguar and Classic ("OS 9") to coexist, Jaguar needs to work with OS 9.2.1 or 9.2.2, and nothing earlier. So to separate OS X from OS 8.5 and avoid some compatibility problems with OS 8.5, you should install OS 8.5 on a separate partition from OS X.