Hi Jess,
They are exhibiting something called Barrier Frustration. Privacy fences can reduce the behavior somewhat, but in your case you need to take further action.
Barrier Frustration can occur behind windows, doors, fences and on leash when dogs are preventing from accessing something they want. Combined with the excitement of movement and barking for your dogs this has turned into a frenetic situation where they are getting extremely agitated each time they sense the other dog. One sign of Barrier Frustration is worn down dirt or grass along the fence line from repeated laps back and forth.
To counter this from happening, you need to do one of thre things:
- Desensitize them to the events
- Redirect them to another behavior
- Manage them by bringing them inside if they bar
Your main goal should be to not allow them to escalate their behavior at all by barking or stop them quickly when they do. (Don't bother yelling at them, just gently bring them inside). Read this post about Barrier Frustration treatment and let me know if you have more questions.