We also rescued a dog, he is a dalmatian, as a puppy. He was growling at 2 months hold. He is not almost 4 and we have had some behavioral problems with him. I went online because he had began growling at me for no reason that I could perceive. I found some articles talking about pack order and him not knowing where his place was in the pack. It recommended I still handle him and make contact but totally ignore him . I don't make direct eye contact with him because this makes him uneasy. We have always thought he was abused as a puppy before we rescued him, a lot of his behavior indicates that. I would definitely see a behavioralist. He is a male and he could feel that you are threatening his order in the pack. Dogs are descendants of wolves and pack order is very important. Even though he lives in your house with a human family, this is ingrained in them. You said your kids are in love with this dog and would be hurt if you re-homed him. Have someone video the behavior and let a dog behavioralist see it or contact dog trainers like Cesar Milan, the dog whisperer or Victoria Steerwell, from it me or the dog.
One of the difficulties we have in handling behavior questions in a "virtual" setting like this is that there are SO many questions that need to go back and forth in order to begin to understand the dynamic that is happening with you and your dog. From previous answers I have seen posted by our behaviorists, I get the feeling that this situation is one that is going to need some "hands on" experience.
I think your best bet is to see if your sister in law can make a recommendation of a certified applied animal behaviorist or veterinary behaviorist in your area. (I see you are in NY, but what area?) You will want to find someone that does not use "dominance training" as their primary method of working with dogs.
You can also check out animalbehavior.org to find a behavior specialist that might be in your area. If you have problems locating one, let me know where in NY you are and I will see if I can find the closest behaviorist to you.
Thanks for responding...and yes he has been neutered. My Vet (my sister in-law) seems to think his background is as an abused dog...specifically by a male. I'm the only one he growls at. Sure he will bark when someone comes in the house when he is not there to see who it is...but with me it's extends well past what I would call normal. With my sister in-law present we tried an experiment so she could witness first hand....when I cam home sure enough for over 30 minutes he would not stop. This dog will not even come near me...unless I'm being affectionate to our other dog...then he will come up to me to and I will reciprocate. But it's like short term memory....I could pet him for an hour...go outside for 30 minutes...come back in and he would start back up again....
Two questions...first, is he neutered yet? And second, what has your veterinarian said about this issue? Is it just you or does he growl at others coming into the home as well?