Resistance effects on LED when connected to battery
Why do you think it needs 3.5V? The forward voltage is 3.3. If you use a 50ohm resistor, the current through the LED is (with full battery): (3.7-3.3)/50 = 8mA
That is all you need. The LED should light up fine with 8mA. That is the thing you need to be looking at, the current through the LED. LEDs don't follow  Ohms Law so don't worry yourself with voltage drops etc, as a beginner (which it sounds like you are) just worry about forward voltage and current for now.