Don't think this is the right kind of dog for your neighbors. Have to go to England to get a stable German Shepard, as unless you want to pay $$$$ in US, you can't find a good one that you can trust. Doesn't sound like they socialized her either since she is dog aggressive. Best to just have the police take care of it. Don't think you guys should go over there. Doesn't sound like owners are open to suggestions, such as a fence (6feet), or care about their dog (hence don't care about yours either). Should always be on a lead when out of dog run.
It would probably be best if police took the dog away from them and put it down, as she can't be trusted and perhaps (likely) a child will be next. Too bad, as the right owner would have at least made the dog manageable.
People don't do their homework! Our love to Schnitzel.
http://www.spdrdogs.org/breeds/gsd.html