Their dog jumped their fence leaving their yard and going after the neighbors cat. I am sure the cat was on it's own property or maybe was roaming the area which is enough to have the high prey drive kick in. I believe any dog that leaves the property and kills another animal has to be evaluated though? At least thats how it is in my area. Animal control gets called and they keep them for 3 days usually.
How horrible though
As others have said please don't rehome the dog. She only did what is natural for most dogs and to rehome her would be very hard on her