http://www.cvm.uiuc.edu/petcolumns/s...cle.cfm?id=112 http://groups.msn.com/InMemoryofTigg...dspetdies.msnw
here are some sites about explaining death to children. This will have to be one of life's lessons. I would tell them that they definately can't hate the dog for it. It is in some dog's nature, like huskies that haven't been socialized for instance. They have a very high prey drive and get excited when they see things moving, as if it was a rabbit. It is really the same concept of one of our little yorkies and a mouse. But it is the neighbor's responsibility to keep the dog in their yard, if the cat was the one in their yard that is another story. They should control their dog, yes.
When I was that age my neighbor's dog and another dog tore my cat apart right infront of my sisters and I. The cat was in our front yard and the 2 dogs didn't have leashes. I ran inside to get a towel and my mom ended up yelling at me for "destroying her good towels." I felt like it was an emergency and just grabbed one. We put her in a box and my dad drove us to the vet. I prayed harder than I had ever prayed for her to make it. But my parents had put her down that night and didn't tell us. They told us to just pray for her. I don't know why they did that. Honesty is the best policy.
I hope that this helps somehow and I'm sorry for your loss.