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Just a couple of comments:

1.Terroristic threatening has nothing to do with your level of fear, but with their intent. If his intent was to place you in fear of imminent serious bodily injury with his threat of violence, then he was guilty of terroristic threatening.

2. It's never a good idea to respond with anything in the line of "Bring It", "Hit Me", "I Dare You". While it doesn't negate the terroristic threats, it does muddy the water if it escalates. Not to mention the fact that it does nothing to deescalate the confrontation. That's supposed to be one of our primary goals if we find ourselves involved in a situation. It's tough, I know.

3. Domestic disputes are horrible things to get involved in. Most definitely try to keep from finding yourself between the feuding couple.

Having said those things, I don't know that I could have only been a witness either. I would have called 911, or had my wife calling before I stepped out. But More than likely I would have yelled something along the lines of what you said you did... "Hey, What's going on?" Or "Hey, Knock it off" and then let the guy know the police are on the way and that I was going to watch what goes on till they got there. Beyond that, Not much conversation would do any good with the guy. All in all, it sounds like you didn't do too bad of a job. Everyone walked away without any additional holes in them, and only people deserving to spend the night in jail did.