I wouldn't try to coax him to get to know your dog. This will only have the opposite effect. Also, trying to lower your dog down so he can get some dominance, thats a really bad idea also and could cause your dog to become aggressive in an attempt to protect his status....and, as you've found out, it was too much for the other dog to handle.

I would just act normal and, as much as it pains you to see the other dog hiding out of the way, he's doing what is normal for him. He's bascially showing respect to your dog by keeping out of the way. If you don't interfere anymore, he'll probably start to gradually come out of his shell and improve in his confidence but your attempts to coax him will have stunted this so far.
You dog will know full well why he is acting in that manner because he is a dog so he isn't looking at you all confused. He's probably trying to figure out why you're all confused about it.
The more time the two dogs spend in each others company, the quicker he'll get used to your dog.