we used to hang out together all the time. Then she started a relationship with someone else, & I withdrew & stopped our friendship.

She wants to resume our friendship. I am left with the decision to accept and watch her with someone else

which I do not really want to do, or refuse and continue not seeing her, which I do not really want to do.

I understand how that goes. Probably best to tell her what you're feeling. May or may not work out, but being honest about it is good.

The problem is she knows how I feel about her. She says she misses hanging out with me as a friend. Oh well. We hold on.