<p>Definitely just be honest with her.
As said, giving explanations for your rejection or giving her any indication of a possibility that she could “earn” your interest/attraction is only going to make matters worse and complicate the situation.
I think your best bet is to do as Christine and Camelia suggested and basically tell her she’s a great girl but you are simply not attracted to her in that way. If you truly value her friendship, feel free to add that (but don’t lie about it – if she is someone you’d really rather not be around, I wouldn’t indicate you “want to be her friend” because that’s just going to make things worse down the road!)</p>