How about a compromise? I agree that forcing the dog to stand her ground could be a disaster but it would be useful if the cat is forced to realise that the dog is not such an easy target and for the dog to realise that there are other options to running away.
You could try keeping the dog on a long line in the house and keeping her pretty near to you. Get a water pistol and be vigilant...as soon as the cat starts to approach in attack mode allow the dog to move a short distance away but not to run away. At the same time shoot the cat with water - get as much water on the cat as possible the first time - a lesson learned well the first time is much better than a hundred lessons where the message isn't clear. Try to keep your movement to a minimum and not to look directly at either animal. Don't make any noise at all or make a fuss of either animal after each incident. The dog will learn that it can cope with the cat and become more confident and the cat will learn that the dog is better left alone.