Why not tell this kid exactly what you think, and what you want? Honest communication can go a long way.
Every person has the right to say who gets to touch their body and how- although children are often disrespected this way, so a child might not understand about this if that is the case. But you certainly have the right to say 'do not touch me like that' and to avoid that person if they do not stop touching you like you don't want to be touched.
You're right. Telling a child to do or not to do something, , will not guarantee the response an adult might want. If it doesn't make sense to the child, they are likely to not follow through. Do you do things that don't make sense to you, just because someone else told you to do it?
I don't think it is normal or natural for a child to lie. Lying is a protection against being harmed. If a child is lying, they are afraid of being harmed. Also, it is likely that they are not being helped to get what they want, and without guidance as to better ways to get what they want, they resort to stealing.
Maybe you can't seem to let it go, because what the neighbor child is doing is wrong. You can share your ideas about morality with the child. Indeed, it seems like it would be self-sacrifice on your part to *not* share your ideas with him. Self-sacrifice often builds up until an eruption of temper can relieve the tension.
In fact, maybe your discussion of morality with the child might help the father (who said nothing) to begin to understand how he might best communicate about morality with his own offspring.
Children don't know about right or wrong automatically. They depend upon their parents to help them learn about morality and all other things about relationships and how to live in this world. But this doesn't mean to force a parent's ideas about morality upon the child, without it making sense to them. It takes time and building upon experience and information for this to happen.