Hi OP -I hope you're still reading this. Sorry you're in this horrid position.
I can't really advise/opine on what you should do - I don't know enough of the details. However, here's what I would do;
(Disclaimer: I'm in the 'keep the dog and fix the problem' camp)
Give the dog his own space. All depends on your house layout; is there anywhere your daughter is already not allowed to go? The kitchen? Utility? A spare bedroom? Somewhere with a single access point. Get a dog flap; install it in a sheet of MDF cut to fit the lower part of the doorway; hinge it so you and your husband can get in. This should effectively create a babygate which the dog can pass through but the children cannot. This room is now a child-free zone; leave the crate in there, door open, as it's the source of the threat. Now dog can keep out of the way when the children are awake/active. Make sure you use the room - coming and going and basically reinforcing that it is your space and he is using it, rather than it being just his space.
I'm not sure what crate you have/where and how it's set up; but the crates I use are the metal barred ones - if you have a fearful dog, a crate like this might be too open. If you can't do the above, then my first action would be to cover the crate with throws/dog blankets - make it dark inside so he can't see the kids. Also you'd have to be very proactive about teaching your daughter not to go close to the crate if the dog's in it and the door is open, this means being constantly vigilant and acting before your daughter has got too close. Bloody hard work, but it will reassure your dog that you are protecting him, not just shouting when he is scared and protecting himself.
Also, as a PP says, it might be worth looking at your dog's energy levels. Talk to your husband and explain that he is going to have to take the dog out for an extra walk in the early morning/evening (or whenever timewise it fits) as it's good for the dog to have that exercise time, and also it's a calming/rewarding activity for the dog.
Finally - my main soap-boxy/opinion-stating bit, and my reason for advocating going to all the above effort is two-fold;
1 - I do believe that when you take a dog into your family that dog is your responsibility and that all possible solutions should be attempted before rehoming (or destroying as another PP mentioned)
2 - Whilst it is good that your breed rescue would put your dog into a foster home, he might not settle in that foster home and end up being stressed and uprooted a good many times - it's impossible to know how that will affect him. Not to mention that most people aren't looking to rehome a 7 year old dog. So I'd just want you to understand what it would mean to rehome him - he might live out another 6-8 years in a myriad of foster homes, stressed and scared. He might take to it really well and just accept it without issue - so I'm not trying to put an emotional spin on things. I just think it's important to be aware of the potential consequences of rehoming. Just as it's important to be aware that if you do keep the dog and not make any changes then there could be some very real consequences of keeping a frightened/uncomfortable/territorial dog with a toddler.