As others have said, talking with the neighbor first is the best option. If that doesn't work, talk with your local humane officer/dog warden. Sometimes it takes an "official" person to let him know what kind of trouble he can get in if "his" pet keeps attacking other animals. After all in most states you are responsible for whatever you animal does.

As for non lethal methods of keeping the dog out of your yard. You can try a electric wire around the boarders of your property. You can buy an electric line/battery set up at Lowes for under $100. Keep the line about 2-3 feet off/above the ground. Don't worry...its not that strong, providing only 110 volts (i.e. it plugs into any 110volt socket). Not only will it keep other animals out, it will also keep yours in (you never know....your dog may be the problem when he gets older). Once the dogs have gotten "shocked" once or twice, they will generally steer well clear of the borders of the property. At that point you don't even half to keep it plugged up. Trust me, it is very effective.

I would also avoid those underground fencing setups. They are a waste of money and fail most of the time.