Liverpool are in turmoil both on and off the pitch, having failed to qualify for the Champions League and with uncertainty regarding the Anfield outfit's future ownership.
And speculation continues to link Benitez with a move to Juventus at the end of a miserable season.
Smith spoke out in his Liverpool Echo column.
"Rafa has always said he loves the club, the fans and the city. For the sake of all three, he must now come out and make his intentions clear - one way or the other," Smith said.
"Rafa has said nothing publicly to suggest he is still up for the challenge, ready to try and sort out the problems and go again. That is only adding to the anxiety and fuelling more controversy.
"We all know the problems the American ownership has brought - and at times caused the manager. It can't have been easy for him to a degree but in truth he has made mistakes which cannot be blamed on (Tom) Hicks and (George) Gillett.
"Not only has this campaign been the season from hell, with 19 defeats, the manager is giving every indication he has had enough and wants out.
"One word sums up the whole, sorry state of affairs at Liverpool these days - embarrassing.
"Granted, Rafa's bought some really good players - but others seem happy to pull on the red shirt yet have no idea what it means to wear it.
"This squad isn't good enough and does not have enough depth to it. That is a crying shame because we've had such a strong spine with players like (Jose) Reina, (Jamie) Carragher, (Javier) Mascherano, (Steven) Gerrard and (Fernando) Torres to have built around."
Smith, who made 638 appearances for the club, believes the fans deserve better.
He added: "These Liverpool supporters are always there through thick and thin - and right now it is very thin times indeed for them all.
"The manager must first come out and make his intentions clear. Then we have to pray that soon the club is sold to owners who have the clout to invest in it and get us back on track.
"For the sake of those wonderful fans, I hope they get some good news soon. Because they deserve it."