The excavation and drainage drilling for underground mining induces stress redistribution around the gas drainage borehole, thus forming three physical zones: residual state zone, strain softening zone and elastic zone. The formation process of these zones contains complex interactions among deformation, natural gas flow, and coal seam damage. A better understanding of these interactions could provide better guidance for the gas drainage engineering. Extensive studies have focused on the effect of effective stress or effective strain on permeability variation based on the poroelastic theory. Meanwhile, as there is few permeability models taking the post-peak failure effect into account, previous permeability variation analysis seldom commonly considered the elastoplastic characteristic of coal seam, which results in the permeability misestimation. Therefore, this study proposes a new approach to analyze this interaction process. The innovation of this approach is that it takes into account the influence of coal permeability enhancement in failure zone and the volumetric compaction in elastic zone around the drainage borehole. In this approach, analytical solutions of stress and strain are developed to include both the strain softening around a gas drainage borehole and the compaction in elastic zone. These solutions thus remove the flaws that previous studies did not consider the compaction in elastic zone. Further, a new permeability model is proposed by the introduction of damage enhancement coefficient for post-peak failure. Third, the permeability distribution of coal around a gas drainage borehole is calculated based on the analytical solutions and the new permeability model. Fourth, the gas flow equation is numerically solved to obtain gas pressure profiles. The gas content computed by this approach is verified by field data. Finally, parametric study is carried out to investigate the effect of the damage enhancement coefficient, initial geo-stress, drilling volume, and uniaxial strength on the gas pressure and the permeability around the gas drainage borehole. Based on these numerical analyses, it is found that the evolution of permeability is closely related to the physical properties of coal and the geological condition of coal seam. Higher initial geo-stress and lower failure strength have larger unloading zone and higher permeability enhancement. This compaction helps the coal seam form a flow-shielding zone near the interface between plastic zone and elastic zone. The gas flow in the coal around the drainage borehole can be divided into four different zones.