The Palestinians have rejected the plan before it has even been unveiled, citing a string of moves by U.S. President Donald Trump that they say show his administration is irredeemably biased.
They are likely to see the latest comments by Friedman as new nail in the coffin of a peace process that is already on life support.
In the interview published by the New York Times on Saturday, Friedman said that some degree of annexation of the West Bank would be legitimate.
“Under certain circumstances, I think Israel has the right to retain some, but unlikely all, of the West Bank,” he said.
Senior Palestinian official Saeb Erekat has said any such policy would be tantamount to “US complicity with Israeli colonial plans.”
The establishment of a Palestinian state in territories, including the West Bank, that Israel captured in the 1967 Six-Day War, has been the focus of all past Middle East peace plans.
No firm date has yet been set for the unveiling of the Trump administration’s plan although a conference is to be held in Bahrain later this month on its economic aspects.
Failed state helps nobodyThe public comments made by administration officials so far suggest the plan will lean heavily on substantial financial support for the Palestinian economy, much of it funded by the Gulf Arab states, in return for concessions on territory and statehood.
“The absolute last thing the world needs is a failed Palestinian state between Israel and Jordan,” Friedman said in the Times interview.
“Maybe they won’t take it, maybe it doesn’t meet their minimums.
“We’re relying upon the fact that the right plan, for the right time, will get the right reaction over time.”
Friedman, a staunch supporter of the Israeli settlements, told the Times that the Trump plan was aimed at improving the quality of life for Palestinians but would fall well short of a “permanent resolution to the conflict.”
He said he did not believe the plan would trigger Palestinian violence.
But he said the United States would coordinate closely with Arab ally Jordan, which could face unrest among its large Palestinian population over a plan perceived as overly favourable to Israel.
Publication of the plan looks set to be further delayed after the Israeli parliament called a snap general election for September, the second this year.
The plan is regarded as too sensitive to release during the campaign.
During campaigning for the first general election in April, Prime Minister Benjamin Netanyahu pledged to annex West Bank settlements, a move long supported by nearly all lawmakers in his alliance of right-wing and religious parties.
Earlier, in February, Netanyahu told lawmakers he had been discussing with Washington a plan that would effectively annex settlements.
In a rare public show of disunity between the close allies, the White House then flatly denied any such discussion.
Following persistent expansion of the settlements by successive Netanyahu governments, more than 600,000 Jewish settlers now live in the West Bank, including annexed east Jerusalem, among some three million Palestinians.
The international community regards the settlements as illegal and the biggest obstacle to peace.