Really don't get why you tried setting them up when you liked her. I guess that you hadn't been in this situation before and imagined you were being noble, but I guess now you've learned is that all that happens is you set yourself up to be in competition with your best friend.
So be honest with him that you like her (although, like someone said, probably best not mention your time with her at the dance) so that he's aware that he has to make the same kinds of decisions that you've been making over what's more important, her or your friendship. And tell him that you've liked her for ages so that it doesn't like you're just now getting jealous and deciding you want a piece of that.
You're going to have to agree between the two of you to be gentlemen and let the lady decide. Ideally, the two of you will go to her together and ask her if she knows who she wants, so that you both know where you are and the one who's turned down can concede fair play to the other, without there having to be any warring over trying to impress her or ask her out before the other one does.
So be honest with him that you like her (although, like someone said, probably best not mention your time with her at the dance) so that he's aware that he has to make the same kinds of decisions that you've been making over what's more important, her or your friendship. And tell him that you've liked her for ages so that it doesn't like you're just now getting jealous and deciding you want a piece of that.
You're going to have to agree between the two of you to be gentlemen and let the lady decide. Ideally, the two of you will go to her together and ask her if she knows who she wants, so that you both know where you are and the one who's turned down can concede fair play to the other, without there having to be any warring over trying to impress her or ask her out before the other one does.