Thanks all, for your comments and suggestions. Two nights ago we spoke to the neighbor. We had decided to wait for a run-in instead of going over to their house and making a point of telling them what happened. The neighbor was extremely apologetic and concerned about our dog. We had a good talk and got everything out.
As for my dog, she is fine now. The leash comments were taken to heart. When we take our dogs for a "walk", they are always leashed. But when we step outside the front door for 10 seconds or so, and the dog goes to pee not more than 8-10 feet from us, well.....they are not always leashed. However, this was one of those situations where certain things happening at a certain time led to disaster. We are more vigilant now, carefully checking the yard when we go out. And if we step outside and the neighbor has their dog around our house, the neighbor calls out to let us know.
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