You could almost be telling the story of my life for many years 🙁. I'd lived happily in my dream house at the end of a quiet cul de sac on the boundary between a large city and countryside for 20 years when my neighbour moved in. He bought a house where the 2 sets of previous owners had fallen on hard times and the house had been pretty neglected for many years and repossessed twice.
From literally the day he moved in he was a problem and for some reason decided that every problem in his previously neglected house somehow originated on/from my property. For example his garage roof (put on by total cowboys) leaked because needles fell from my pine trees. A crack in his garage wall, which started at the top and was caused by the roof having previously rotted and collapsed and all the timbers being open to the elements for many years, was also according to him caused by my trees. Surveyors employed by me refuted this but it didn't stop the letters, and threats.
He was petty, threatening and vengeful and because my house wall actually formed part of our boundary was able to make my family's life a misery. Eg he put up a basketball hoop a few feet from my living room walls and battered heavy balls into the wall morning, noon and night. Apart from all his threatening letters I also received ones from a variety of solicitors (no one firm was prepared to represent him for long). His final blow was to put up a huge locked electric gate and bar my access to the boundary wall of my property despite our deeds, stating clearly that I had an access right. This meant I couldn't clear my gutters for 2 years in an area near woodland with huge amounts of leaves. My gutters choked and 2 rooms became damp.
Because of this I had to call on the legal assistance part of my home insurance, and the lawyer I was appointed, who mostly dealt with neighbour disputes, said this guy was the most unreasonable person he'd ever dealt with. The neighbour left it until the morning of the court case to agree to allowing me my access back, by which time my nerves were shot.
The stress of living beside him for 15 years, finally took its toll. It was impossible to predict when or about what he'd kick off next and when our DDs left home we finally decided living like this had gone on long enough and we sold up after he actually attacked my husband in our drive. I thought I'd live in my lovely house forever. I really thought he'd finally get bored of this but all that time on he was showing no signs of it.
In the 35 years I lived there I got on really well with all the other 14 houses in my street. The neighbour managed to seriously fall out with a few of the others, though it was only us he waged his vendetta on.
You talked about wanting to get out of the "war" mentality and I know just what you mean. Over the years, I really did try with the neighbour, reduced the height of some trees, removed the ones near his garage altogether, but nothing was enough and as soon as I'd placated him in one way, in the hope of an easy life, he just started on something else. I also offered to pay for mediation between us but he just laughed at me.
I'm sorry this isn't a very uplifting story, but I think there are some people you just can't win with. Now he's out of my life I am so much less stressed. I wish I'd just moved away years ago, but I really thought he'd tire of if all and I loved my home.
I very much hope your neighbour is different and may see some sort of sense in time, but if not just get out and don't let her ruin your life like I did.