You sound really on the ball with it and have the right attitude and instincts.
Slackening the lead is a really good idea, as any tension on the lead will make him worse and he really needs to you give him the cheery 'everything's ok' voice, as he will take his lead from you. Obviously when he does let the other dogs sniff him without reacting, you need to give him massive 'jackpot' rewards.
The only thing to be wary of is not letting him get the idea that if he starts to give off aggressive signals you will remove him from the situation, as obviously this effectively rewards his aggression and could make it worse.
I would try, as far as possible, to limit on lead dog to dog meetings until you've laid the groundwork by rewarding him lots and lots for not reacting at a distance. If other dogs are approaching on the lead, try to select a spot slightly off the path the other dogs are on, ask him to sit and reward him for watching, rather than reacting to the other dogs. If he does react, ignore the behaviour, just make sure you have him under control and concentrating on rewarding good behaviour.
You could also try using the frisbee for distraction as the other dogs pass. Obviously don't throw it, just get him keyed into it and if he manages to focus on the frisbee and ignore the other dogs, wait until they've gone past, keep his attention and then let him chase it as a reward.
Letting him 'escape' from persistent dogs if he needs to is also a good idea (as long as he's not aggressive off the lead and has a decent recall). This is particularly useful if the other dogs are off lead, so he is the only one that is 'restricted', as he will feel more intimidated and nervous in that sort of situation.
On lead aggression is pretty common, as being on the lead inhibits the dog's natural instinct to escape a situation he's not comfortable with, leaving him no choice but to try and defend himself.
My first ever dog training client had a labrador called Buddy.
(A verrry long time ago now!)
I wish there were more people like you around, who are willing to take on a rescue and work with them to overcome their problems. He is very lucky to have you. 