This behavior calls for clear, straightforward limit-setting, without anger or blame. Talk to your son about never touching other people's genital areas or buttocks, and never engage in play that involves undressing. If he is going to touch his own penis, he should do so by himself, at home, in his room, never with another person present. It is not unusual for young children to engage in some version of this type of behavior, but it definitely calls for intervention by the parents. Let him know that he is not to ask other children to engage in the behavior, and that he should always refuse any similar requests and inform an adult (you, teacher, e.g.) if another child makes the request.
Well let him play with his own...just let him know that he can only do that in the privacy of his bedroom or bathroom when no one else is with him....then calmly let him know that you do not touch other peoples private parts--tell him that wherever underwear goes he is not allowed to touch on other people--then also start a conversation about personal space--let him know that is okay to tell people to stop touching him if he feels uncomfortable....but do this calmly let him know what he did was not correct but he is not a bad person, but not to ever let it happen again. Also, if you and the mother of the other boy are friends see if all of you can get together and let the boys know that the behavior is not allowed to happen again or they can not play together and also again lay down the same ground rules as you have at home.