My brother's GSD lives with kids and likes kids, which is the reason he goes berserk when there are kids in his sight. To most people it would seem dangerous and aggressive, but it isn't, he just wants to be included. A fence is a good idea whether or not the dog is a danger, because kids sometimes wonder off, chase after things, and you never know what might wonder onto the yard while they are playing.
GSDs are an aggressive breed, but generally speaking they have a good sense of what is and is not a threat, but that is not always the case. We may have the same breed as your neighbor but we can't account for that dog's temperament or actions, a fence would be a good safety precaution.