We analyse the possibilities for quantum state engineering offered by a model for Kerr-type nonlinearity enhanced by electromagnetically induced transparency (EIT), which was recently proposed by Petrosyan and Kurizki [Phys. Rev. A 65, 33833 (2002)]. We go beyond the semiclassical treatment and derive a quantum version of the model with both a full Hamiltonian approach and an analysis in terms of dressed states. The preparation of an entangled coherent state via a crossphase modulation effect is demonstrated. We briefly show that the violation of locality for such an entangled coherent state is robust against low detection efficiency. Finally, we investigate the possibility of a bi-chromatic photon blockade realized via the interaction of a low density beam of atoms with a bi-modal electromagnetic cavity which is externally driven. We show the effectiveness of the blockade effect even when more than a single atom is inside the cavity. The possibility to control two different cavity modes allows some insights into the generation of an entangled state of cavity modes.