After teacher and headteacher comes chair of governors. At this point you point out how the school have not followed the bullying policy. The chair of governors will decide whether the policy has been followed correctly or not.
If you get a copy of the complaints policy, it will explain the order of complaints and who to contact. Ofsted aren't there to sort out complaints about bullying.
If the policy is a bit wooly then look to the main aim of the policy or rationale at the beginning (which there usually is). It should give a generalised "we recognise that bullying is bad and shouldn't happen" and focus on that. Yes they can be following their procedure eg separating them but if it's not stopping the bullying then it isn't in keeping with the overall rationale of the policy. If the school's answer is "well we did x y and z which is in line with school policy" as an answer to why the bullying has continued, the answer should be "what else are you going to do then?"
The next step is to make a written complaint to the head teacher. Allow them to investigate and respond. If you aren't happy with the outcome, escalate it to the chair of governors. After that (if the school isn't an academy or free school) you can take it to the LEA.
This should all be set out in the complaints policy which you can get from the school or may be downloadable from their website.