I've been on a few days vacation and just got back, unfortunately I missed last nights class.
To answer your question ucdcrush. we take the dogs futher out then work them back in closer, praising for good behaviour. We then get the dogs sitting side by side facing the oposite direction. The instructor is watching for signs that the dog if the dog is stressed or is giving signs of thinking about reacting. If the dog looks like they are going to take a sniff we give a small correction. Once the dog faces each other they are both focusing on their handler, all without a verbal correction or cue to "watch me".
If a dog lunges at another dog, he will have that lunging dog approach the dog he reacted to, which is in a sit stay beside the handler. The lunging dog is taken out further and slowing walked closer and closer to this dog.
Then he would either do scramble heeling with all the dogs, or put the dog in a down stay while the other dogs walked around this dog, starting out in a big circle gradually getting closer and closer.