Your DGS sounds like he is intelligent and has a good sense of self preservation. If two dogs are barking loudly, growling and throwing themselves at the fence, and he is very little, he is wisely observing that should they somehow get out, they could injure him. Nothing wrong with that. It's a pity that he was just beginning to overcome his fear, by patting a placid dog (see, he's not paranoid, is he, just sensible) when these other dogs have set him back. Doesn't sound like he has a terrible fear of dogs. The dogs are only doing what dogs do. Protecting their territory. So it's not their fault either and if they are well secured, it's not really the owners, although I would question her judgment re letting them terrify small children; especially as you had already thanked her. Maybe, if she's not very nice, she perceived it as sarcasm. They're probably out more because it's summer and she's got the door open. It sounds as though you live in a small village, so more difficult to cause a rift with a person who seems confrontational. If I were you, I would either drive if you think it's going to cause your grandson issues that could lead to a lifelong fear of dogs. Or, walk briskly past, holding his hand and keeping him on the opposite side to the dogs, so you are a buffer, don't make any eye contact with the dogs at all (eye contact is confrontational and will make them bark and growl more) and keep walking. As you go past, talk about something like Spiderman or robots or something.