My son has been afraid of animals his entire life. We didn't know it until we were visiting a friend when he was 1 year old and their cat WALKED across the room. He freaked out. From that point on he was afraid of any live animal, but loved stuffed animals. He is 6 now and we just got an 8 week old Basenji. We talked about it alot, (he has slowly gotten used to our friend's cat, but every time the animal made a sudden move he jolted). He was excited to get the puppy, and we sat with him while he got used to exactly what the puppy would do. It has only been 2 months and my son is so good with our dog that he is not afraid of the dogs across the street who are high strung little fluffy things that always sent him runnning and screaming into the house. When I asked him about it he said he wasn't afraid now because he had one now. We waited to get a dog until both of our kids were older and could handle some responsibility. It was the best decision we made. He is still uncomforable around large dogs and other large animals, but has made remarkable progress. I don't know how your nephew will respond, but as he gets older he may realize that he has some control over the animals and that may help. Good luck!!!
He is our first. My husband and son have sever allergies, so we were looking for a dog that would be good for them. It took a month, but the allergic reactions have subsided. We named him after one of our favorite foods- kibbe nayeh (raw ground lamb with bulgher wheat). Sounds weird to name him after that, but it is something we love! We have had him for 6 weeks now and he is great (most of the time).