Can I thread the inside of a steel water pipe (encased in concrete) to safely make a connection to the remainder of the water system?
It may be possible but I would be concerned that the age and condition of the pipe might make it brittle and not good for tapping threads into.

My suggestion for a solution would be to rent a "core augur" and drill a new hole nearby through the foundation, and fix the pipe outside the structure. Run the new pipe through the new hole and abandon the old pipe.