Smell but no sight, sight and smell but no contact, then dog on lead and cat loose (so you can control dog and redirect undesired behaviors and show what is desired) and eventually cat goes in dog-free zone if not already there and the cat is allowed to come out to the dog on the CAT's own time.
Let us look at this in more detail
I have five cats and four dogs. The trick is making the cats feel safe and as if they have a safe area. Next is training the dog not to chase and torment the cat. This may mean on leash in the house at times so you can stop the chasing of the cat and redirect to better toys. In addition, a good obedience program (even a refresher if the dog has gone through one already) is a good idea.
Set up a dog free zone
First, set up a Dog-free zone. If the cat can fit through a hole the dog cannot, you are all set here! Get a baby gate - they type with a wire center - and fit it in a doorway. Cut a door in it (file down sharp edges and cover the cuts with duct tape) and this will keep the dog out of the cat's safe zone. In this zone, you will put food, water and the cat's box. Another option is what we did - installed a cat door into the Utility room. If the dog is small enough to get through a cat door, then you may have to teach the cat to jump a lower baby gate to escape the dog. A Dog-free zone gives the cat a place to get away and a feeling of security.
Keep the cat's nails trimmed
Keep the cat's nails trimmed to lessen damage should the cat try to scratch the dog. Alternatively, ask your vet about the claw covers for cats. However, I just clip nails if needed - cheaper and I do not have to worry about reaction to the glue used to adhere the covers or the cover falling off too soon.
I allow my cats to hiss, growl and bat at the dogs to tell them off, but blood drawing is not permitted. Sometimes the more you interfere, the slower the dog will learn. If the dog gets to learn the cat's limits from the cat (with you observing) the dog will often learn faster.
Are certain breeds of dogs more difficult to train to get on with cats?
Some breeds or crosses of dogs bred to hunt vermin may take longer to teach to adjust to the cat. Know the history of the breed you have or the breeds in the cross. For example, even though they are listed as a toy breed in the AKC, Silky Terriers and the smaller Yorkshire have their origins in vermin hunting. Cats may be seen as vermin. Sight hounds with a strong desire to chase may be more apt to chase a speeding kitty. Herding breeds may try and herd or chase the cats. Nevertheless, I have seen terriers, sighthounds and herding breeds live wonderfully with other species if they are raised, trained and socialized properly.
Praise the dog
When the dog looks at the cat but does not chase or try and torment it, praise and get the dog playing with a good toy. Even if you gave no cue or command, you can let the dog know when it is doing something that is good. Moreover, give the dog plenty of exercise and mental workouts. A dog who is getting enough exercise and who is not bored is less likely to torment the cat. I dread long, rainy spells - three higher energy dogs (all herders or a herding breed cross) and once they get housebound and excess energy pent up from not being able to get out and run during the day, they are more likely to chase the cats around.
What if the cat instigates the trouble?
If a cat teases a dog or bats at feet as the dog walks by, I allow the dog to chase the cat a bit. Learning is a two-way street. Just as the dog needs to learn not to torment the cat, the cat needs to learn not to torment the dog.
In the best cases, the dogs and cats will play together and maybe even sleep together. Even though this is very common in my house, I still let the cats have their dog-free zone (also keeps the dogs out of the litter box and from stealing cat food at meal times!)