The Burnley defender is closing in on a £25million return, two years after he was sold for £2m.
Parallels have been made between Paul Pogba and Keane, with the latter set to head back to Old Trafford.
United re-signed Paul Pogba for £89m – four years after letting him join Juventus for just £800,000.
But Pallister, a world record defensive signing when he was bought by Sir Alex Ferguson for £2.5m from Middlesbrough in 1989, said: “It’s easy to say is it an expensive mistake to have let them go.
“When you’re told you are going to leave United it can be hard to bounce back.
“But he’s gone away and improved himself, becoming an England international.
“If the next step is to come back, he already knows the place and will return a better player.”
The Clarets will risk losing Keane on a free transfer if they do not receive a big enough bid for his services this summer – with his contract expiring at the end of next season.
Keane has made it clear that he will not sign a new deal at the club. But United are unwilling to meet Burnley’s £25million valuation.
Burnley chairman Mike Garlick, however, has claimed the value of Premier League survival is so big that the Clarets are prepared to play hardball.
He said: “Let’s roll it forward a year – what’s the prize for staying up again, another £120-130m. So if we miss out on one or two fees and get that, I know what I’d take.”