An ISP-friendly rate allocation system and method that reduces network traffic across ISP boundaries in a peer-to-peer (P2P) network, Embodiments of the system and method continuously solve a global optimization problem and dictate accordingly how much bandwidth is allocated on each connection. Embodiments of the system and method minimize load on a server in communication with the P2P network, minimize ISP-unfriendly traffic while keeping the minimum server load unaffected, and maximize peer prefetching. Two different techniques are used to compute rate allocation, including a utility function optimization technique and a minimum cost flow formulation technique. The utility function optimization technique constructs a utility function and optimizes that utility function. The minimum cost flow formulation technique generates a minimum cost flow formulation using a bipartite graph have a vertices set and an edges set. A distributed minimum cost flow formulation is solved using Lagrangian multipliers.