Once again you confuse what people see with what is actually the case physically.
According to you, if an observer on Earth has his friend 1km away also at rest on earth, and the rocket was just between them when the flash happens, one of them would measure a higher time-interval while the other would measure a shorter time interval.
This confusion occurs because of the difference between SEEING something because of the way photons travel towards us at a limited speed and CONCLUDING when and where something happened (x/t) because you know physics.Let's say E1(x1/t1) / E2(x2/t2) start/end of flash. The flash lasted Δt = t2-t1 in the rocket frame.
In the frame the observer on Earth is at rest, those events will happen at
E1'(x1'/t1') E2(x2'/t2'). Δt' = t2' - t1' = Δt * γ
the well known formula, see here
http://en.wikipedia.org/wiki/Time_dilation
Both observers on Earth will CONCLUDE, which is not the same as SEE, that the time interval between those two events is LONGER on Earth by the SAME amount, no matter if they stand in front, behind or right at where the rocket passes.