I do a variation of that. Definitely have the dog on lead. I now point cats out to my dog and reward if she stays calm and relaxed with me. Ie "Look, a cat", "good dog" + treat or "oops". Mostly we get good dog now.
I think the neighbour's cat might be a lost cause though. And cats in my back yard are fair game for chasing.
I've yet to introduce my dog to my brother's new cat. Who is used to being like the face hugging creature from Alien with his dog. Amazingly tolerant for a chook killing staffy.
I find this way of training really good. Because it deals with the issue AND it can be/is planned and expected and not ad hoc.