My son (7) has a neighbor/friend whom is mean. How do I confront this and keep peace w/mother?

Hi, my 7 yo sonis in the same cl as our neighbors son. We have been friendly w/his parents since they moved in 2 yrs ago. They spend a lot of time at our pool in the summer, and they boy always wants to come to our house and play in the winter. My son was playing outside w/him recently and I witnessed him being mean to my son. Telling him he "wasn't good enough" "you can't play right" "you can't throw the ball rigth" ect... Then played keep away w/another child my son being the "monkey" in the middle. After intervening and trying to get them all to play together this continued so I removed my child from the situation and told the mother. Her response was "I didn't see it". There is always an excuse on her part why he is misbehaving. Even telling me once someoine "told him to do it" lol! What a joke. Anyways my son finally told me the boy does this at school recess and it makes him feel bad. How do I adress this with the mother or do I just leave it alone and not let them play together? She never even told the child to apologize!!!! Part of me wants to be a nice neighbor and the other part wants to punch her in the face! Also when the boys get home from school they get off the bus together and she and I are there. Should I adress it then? Thanks