Making friends?

Two things immediately come to mind.... This type of meeting should take place on neutral ground.  Defense of property adds to whatever else is impacting the dog;  one possible reason for the aggression is fear.
 
Secondly, the friends need to take major steps in upping the training and developing managment strategies.  A dog like this will respond best to short time exposure frequently (2-3 times a day) to stressful situations (walking past barking dogs confined by fences) working on leash manners, sit stays and down stays.  As well as a nothing in life is free program at home 24-7 and work in public obedience classes (which may take some one on one coaching to be able to integrate).  Another option would be private training lessons in multiple locations.
 
At this time, I would not recommend any off lead activities with or without another dog.  Getting really strong dog human bond and quick responses to basic obedience commands would be a more appropriate focus in my opinion.

Just because two humans like each other doesn't mean their dogs will...[]

Were either or both of these dogs well socialized to other dogs (and, by that I mean dogs unfamiliar to them) from a young age (and, by that I mean 8-16 weeks of age, and continuing up through adulthood)?  If not, your chances are less good that they will ever want to be playmates.

I have a VERY dog friendly dog.  He loves every dog he see's, even the dogs that don't like him so much.  Because he is a confident dog, they don't scare him either - he kind of shrugs them off.  My point is that I don't deal with this type of behavior but my thoughts are this.
 
I would continue to walk the dogs daily together, the aggressive dog muzzled.   I do believe in the CM theory of pack mentality and walking them together so if they learn to socialize together in a pack type environment they may come around.  But I wouldn't take my guard down to quickly - this will take much time if it works at all.  When you do decide to allow free play time keep the other dog muzzled until you really have confidence that they have accepted each other.
 

Love everything mrv had to say.

And, here's what I'm thinking:

Put away the muzzle (or what's the really good reason it's being used? What is the need in muzzling an on-leash, supervised dog?. If you are watching the dog and learn to read it, you can talk it down *before* it snaps. If you depend on the muzzle, you're missing the behavior modifictation opportunity.)

Go parallel walking with the dogs on leashes, not close enough to touch each other, like swissy suggested.

Allow short (a few seconds) sniff sessions as long as the dogs are calm, and praise them for it "good sniff!"

Do training sessions with the dogs while they are near each other. If they focus on you and sit/stay/shake/etc they will get used to each other and make less of a big deal about it. It's like making your own group obedience class!

I think getting the dogs used to each other like this on leash is fine, just so long as you and your friend can be relaxed, and don't send anxiety down the leashes!

Once you feel confident that you can read the dogs, let them meet off leash for short, supervised periods of time. Keep a water bottle handy to squirt off a really agressive move, otherwise, praise good manners and "eh-eh" the bad ones. If they don't know how to be dogs (how to sniff, expose their bellies, etc) you have to teach them! If they are obedient dogs, you'll be able to manage it - also they, sound small, easy enough to step in and break it up, right? Anyway, they don't need to play, they just need to get comfie with each other. Maybe playing will come eventually - let them work it out, in baby steps, and with your supervision.

If you don't think you can become confident enough to read your dogs, and supervise their off-leash meeting, hire a trainer to show you how.

Thanks for all the comments. ^^

Now, let's seeeee.
 
mrv: Well, we were in their compound but we brought them away from the house to meet. The moment we went near the house, Bailey started reacting aggressively, so I made sure they were kept away from anywhere she might call her territory. And she has wonderful leash manners, except for when she sees other dogs. 
 
spirit: Yea, I realize that the dogs might not necessarily like each other, although just cause there are hardly any dogs near where we live, and we were just hoping for a chance to let them socialize sometimes. With my dog, he was well socialized with other dogs as a puppy, but he's rather sniffy and not all dogs would tolerate the nosy little puppy who kept trying to put his paws on their back. And eventually, the few that did moved away so now he's basically left with very little chance to meet with other dogs. As for Bailey, we're not sure, because she was an adopted dog. Their friend's friend found the dog abandoned in a park (we live in China, where stray dogs pretty much rule the streets), and felt sorry for her so he took her home. Turned out his son was terrified, so he gave the dog to our friends, who kept her out of pity. I know this isn't the smartest way they could choose to adopt a dog, but...
 
@swissy: That was basically what we were thinking xD
 
@Ixas: Well, the thing is, she has gotten into fights with other dogs before. She was leashed and on a walk when two unleashed Yorkies came running, and the owner of the other two dogs said they'd be fine, despite a warning from our friends that Bailey might react aggressively. She was fine until one of the Yorkies ran under her belly and then she pretty much exploded and bit into his ear.

ORIGINAL: MoonRazor
@Ixas: Well, the thing is, she has gotten into fights with other dogs before. She was leashed and on a walk when two unleashed Yorkies came running, and the owner of the other two dogs said they'd be fine, despite a warning from our friends that Bailey might react aggressively. She was fine until one of the Yorkies ran under her belly and then she pretty much exploded and bit into his ear.

Yeah, I had read that thread, It didn't seem a clear case of aggression rather than reactivity. I wondered if others might comment on the need for a muzzle based on just that.

Seems to me the muzzle puts the dog at a disadvantage (similar to being leashed around unleashed dogs), and might promote continued reactivity. I'd want more evidence before muzzling my dog. Just wondering what people thought about that.