Being honest with your friend is key. You and your friend should be on the same level when it comes to matters of the heart. The friend should be aware that the person is not interested in them but with you and you with that person. If it will affect your friendship and you do not want to jeopardize it then it is better to let it go and find someone new. Otherwise, you can give yourself the chance to see if there is more to you and the other person who likes you.