7 mo old Toy Aussie recently started barking aggressively at dogs -- usually just in our neighborhood. What to do?

My pup is a playful, cuddly little boy that I've had since he was 10 weeks. Recently he has begun barking aggressively at dogs in our neighborhood (and there are lots). I believe it is territorial behavior. He does not act aggressively once he meets the dog. Only barking and lunging when they are nearby...but since he's only 13 lbs it scares me to bring him up to meet the other dog even though it might help him realize there's no threat. I'm afraid the other dog could become defensive and hurt him. Usually he barks from the window looking out at the street (especially at dogs he recognizes). Today I took him to a cafe just down the street from home and was sitting with him on a leash outside. He kept barking loudly and furiously and strangling himself on the leash every time a dog walked by. Finally I took him home (with him crying and trying to get away from me) because I was embarrassed and afraid he'd escape during this momentary insanity. Unfortunately, he also has separation issues (high pitch whining/barking whenever I leave home). I work from home so he is usually with me, which doesn't help training that out of him. He is lined up to be neutered in 3 weeks from now and I'm hoping that cools him off a bit. Please let me know if you have any knowledge of ways to get him to stop barking at dogs in our neighborhood (aka his territory).