gradually re-introduce them in a setting where they are not able to physically interact other than sniffing. That would mean keeping at least one of them in a carrier, probably Dill since he is smaller. Be present to observe how they react to each other. Let them smell and play with toys that the other has left its scent on, while they are separated. Might reduce possessiveness with toys.
Also, consider swapping their sleeping blankets or cushions while they are separated so they get used to being relaxed enough to sleep with the scent of each other.
Meantime, I would follow through with doggy academy for Dill. Might not hurt for Buddy to take some classes, too.
Things might improve after Dill is neutered. My impression of terriers that I have been around is that they can be possessive, territorial, and fearless, so I don't know how much of Dill's behavior can be modified. You might have more success in getting Buddy to be more tolerant. I don't mean that Buddy should have to put up with attacks from Dill, but it might be possible to teach Buddy not to counterattack as a first action. If Buddy could learn to growl and be intimidating, he might be able to make Dill back off.
Good luck.
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