Hard to understand but I think the “neighborhood bully” in this song is Israel and the Jews.
I wish he had or would write a song about the REAL neighborhood bully - the Islamic jihadists who would love to behead you if they only could, and someday will on a worldwide scale after the church is gone with Jesus into Heaven.
It’s Dylan, “Neighborhood Bully” is tongue-in-cheek, about how her enemies call Israel a “Bully”.
You need to read the lyrics while listening to the song.
Every empire that's enslaved him is gone
Egypt and Rome, even the great Babylon
He's made a garden of paradise in the desert sand...