We are great friends with our neighbors, but are kids don't always get along. What should we do?

My child is 10 and our very good friends have an 8 yr old. At times they get along well, mainly when it's just the 2 of them. My child's issues can be hogging his turn and being bossy and when other kids are there, he may leave him out. The other child's issues are that he is controlling, threatens to leave, takes away his stuff, or tells to get them in trouble. Both kids take their turn instigating. His parent's suggest if the other children are bullying him, then he should hit them. This solution doesn't usually match the situation. When he tattles on the neighborhood kids so much they don't want him around. It's so frustrating because we try to let the kids work it out themselves, and it's just not helping. Also, it's putting stress on the relationship we have with our very good friends.