Easy for me to say as one who doesn't own
a dog (but does have two young children), but in my mind that dog is out. Got fortunate once, and no guarantee it doesn't happen again.
If the kids were older, and it was only adults, perhaps a different story. I do love animals...but they aren't more important than my kids.
My brother-in-law had an older dog when my oldest was like 3. Historically, never had a problem. But he was getting older and grumpier, and one holiday snapped at my daughter and drew blood. We witnessed the whole thing and she was just going over to hug him from behind, and he got surprised since his hearing was going. Fortunately nothing serious, but it was unnerving. After that, we made a hard rule that the dog wasn't coming to holidays and we didn't have our daughter unsupervised with him when we were at their house. Our family kind of understood, but we didn't care. I'm not messing around.