It's always hard to predict how you react in situations like this. In similar moments of aggression, I have have several different reactions in the past: to ignore it, to raise my voice and involve others, or, and I don't recommend this, the "come over here and say that again, pal" approach (I hate the red mist, but sometimes it comes...)
Part of me says "rise above it", part of me says that, unless people make it clear that this kind of behaviour is unacceptable, it will simply continue to rise. But then you don't pick fights you can't win.
Would police involvement have been too heavy-handed? The violence, actual and threatened, would seem to me to be assault.
And incidentally, ajax, you were entirely blame-free, and reacted a lot more calmly than many people I know would have.