Is it possible to specify a different root device to a MacOS kernel?
If your USB drive is partitioned with Apple Partition Map and the volume with Mac OS X is HFS+ formatted it will probably boot iBook G4 by simply holding Alt/Optn at startup and choosing said disk.

This may not work on occasion of USB chipset in external box is not compatible.

It will probably not work if you just copied content of your hard drive and not restored it through Disk Utility (or cloned by other means). 

If you cloned it properly and it still not booting try this Open Firmware trick.

P.S. Here is a link on how to change HDD if you will decide to go that route. I've done it few times. I've been putting this drive inside. But now I would definitely buy IDE 2.5 32GB SSD from ebay for the same money but better speed. Still I'm not sure if it worth it if you have one of the slowest of iBook G4 models.