I think you have some transference issues from your previous breakup that were placated on her instead of those issues being resolved separately. Since she made the mistake of letting you get too close with hugging and leg rubbing, I believe that planted the seed to allow your feelings of displacement from the breakup saddle themselves with expectations that were never fully realized with her friendship. So now that she has defined that space, its giving you more of a jolt than just disappointing wishful thinking, because you also have the baggage of the breakup tied up with her. This is why you can not reconcile the terms, because emotionally you were already invested for more which serviced the wounds of your original pain.

That original pain has now lost its place holder and thus you now identify the pain associated with your friend instead of your ex, which is why you feel inclined to "break up" with her to make it go away. I think you need to step back from your friend and finish dealing with that original issue and put it to bed in the proper way instead of making her pay for something she never placed there to start. I believe if you give it that context and prioritize accordingly, your friendship can resume without any additional damage. You just have to clean up that emotional baggage and not ask her to answer for it.