I think I have too much misplaced hope that we I can encourage FIL to change. I have given up on my own F ever changing, maybe this is related.
I think you've hit the nail on the head yourself here. It is very hard not to have much in the way of extended family, I know from experience, and it's understandable you wanting to salvage something that you want to see as being possibly manageable.
But I think you already know that it's not really going to work. You have to ask what benefit it will be to your DC to have a relationship with him. If they are going to end up walking on eggshells around him, being the target of his anger and so on, it doesn't bode well, not to mention the strain on your DH and you and how that will then also impact on them.
You say you "thought you'd ride this spurt of interest" but think about what message that would send to your DC. It's OK for someone who supposedly loves them to pick them up like a new toy for a while, but then drop them again as soon as he gets bored. What would they learn about relationships from that, what would they "learn" about themselves from that?
If your main reason for not cancelling is that you fear his anger if you do, that tells you everything you need to know, really. No doubt your DH grew up in fear of his anger, and he wants to protect himself from it now: I think supporting him on this and protecting your DC from the same should be a priority.
A strong, loving family unit of your own is ultimately more important and better for all of you than a semblance of an extended family that is actually toxic and spirit crushing. Of course in an ideal world you would want a loving extended family as well... but where exactly is that ideal world? I certainly haven't found it!