First, take a deep breath. You do not have to pack up and move out of the neighborhood. It happened is done and over so don't make this out to the worst thing that ever happened to your family or your child.
A 13 yr old should not be hitting anybody, except maybe another 13 yr old under certain rare conditions. In the above scenario, he should keep his hand to himself.
I would talk to the neighbor and tell him that if this 13 yr old ever lays a hand again on any of your children, that you will indeed get the Police involved and press charges.
As for playing with the younger children, you will need to decide if that can continue under supervision or if the older is likely to be involved. You may decide this incident is just an abberation or decide just not to let your children play with any of their children.
I don't know where the kids congregate but you may need to erect a fence. And, if the kids meet at the playground, the 10 yr old should be told to stay away from them. However, kids forget past grievances pretty quickly so if he does play with them along the way, I wouldn't get too upset about it.
As for the 5 yr old, he needs to be supervised by an adult when outside. He is not old enough to stand up for himself nor should he be expected too. So, keep him close to home.
Anyway, if you generally get along with the neighbors and they are decent people, I don't think you need to go to WWWIII over this, just make clear that his child is to keep his hands off of yours.
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