We too have a dog (shepherd/lab that weighs about 70lbs) that is absolutely wonderful around dd who is just turning 18 months this week. This dog will literally sit in front of her food dish and let DD feed her a piece at a time without batting an eye. Or allow DD to snuggle up to her and poke her nose eyes ears etc.Â
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It sounds like you are doing a good job teaching your LO the gentle thing which is something we have worked on with DD since she started taking an interest in the cats and then we got our dog when DD was over a year so we just carried it on with the dog. Now that DD is getting bigger and stronger we take a much more serious approach to her play with the dog as she is finally getting to a point where she can actually hurt the dog without meaning too. I know your dog is not as large as ours so it would be even more of a concern for me.
We do not allow DD to play rough with our dog at all. She is allowed to sit next to the dog and stroke and cuddle up to her but never to lay on her anymore as DD is getting big enough where it is uncomfortable for the dog. I think as a dog owner and a parent of a child in general it is extremely important to teach respect for your own pets as well as respect and caution around dogs you do not know. I cannot stand it when a parent allows their child to run up to my dog and touch her without asking permission. I know my dog is great around kids and babies from experience but my dog is also extremely energetic and knocks our DD over all the time (dd takes this all very well). If my dog knocked a stranger's toddler over and that baby bumped their head you can imagine the misery it would cause us if the parent freaked out.
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My point is I would nix the rough play immediately and start to really watch your LO with all dogs in general and teach that you never approach a dog you don't know without permission. I would separate when rough play starts but I guess I would be the rare one here and take a more hardline approach if DD pulled or smacked out dog which she has done once in a while. I absolutely do not tolerate it at all and it is one of the few times where I will raise my voice sharply to get her attention immediately. Then I model the gentle petting to her and if she smacks again I grab her hand fast and very very firmly tell her no and just take her away from the dog...
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Think of your LO as a future pet owner and how you would want him to teach his children to play with animals. I really believe the good habits start young with animal care and responsibility. You are lucky to have a great and tolerant dog it makes it easy to sometimes forget that not all dogs are tolerant like that or even actually like children!