They are working on it. An ongoing process. Intense negotiations are happening.
Watermelon accepts that the dog is not going anywhere, she is still not happy about it, but she is being far more cordial than she was 3 weeks ago. And Morgan, she is such a GOOD dog, is really trying to be very goo and to keep her prey drive in check. She has accepted that she is not allowed to eat the cat, though she still sometimes gives into her prey drive and stalks her a bit but is quick to snap out of it when notified by a human. Both pets are behaving far more nicely than I expected after the fireworks of the first week.
Now I don't see them snuggling, EVER, but I think they will eventually not have to be watched every second they are on the same floor of the house. So things are great. Morgan has not shown a single sign of aggression towards people, not even a tiny growl, at even the most unexpected or intolerable intrusion of space by the kids. They can pull on her nostrils and poke her eyes and the worst she has done is gotten up and walked away. They have put their hands in her food bowl and she doesn't mind at all. She is just wonderful, we are very lucky to have found her.