OP, this was awful to read. YABVU.
Imagine if you lived with a wolf who kept chasing and trying to kill you: not only is there a real risk that you might lose your life, you're being terrorized and traumatized on a daily basis.
No wonder your cat is spending her life cowering in one bedroom. Cats are territorial and their home range is supposed to be their safe space. It is causing her unimaginable stress to have nowhere safe at all.
Getting this dog was a massive mistake. However, I don't think it was your fault, there is a trend in the dog world to ignore the fact that breed characteristics are genetic and innate. Rescues have a vested interest in believing this, because they want to pretend to prospective adopters that undesirable behaviour is fixable with training, but sometimes it's just not.
The rescue should have known that you can't fully predict adult dog behaviour based on early puppy behaviour, and should have known that any terrier mix would have a likelihood of growing up to be unsuitable for living with a cat. So in contrast to a lot of people on this thread, I don't think the act of adopting a rescue, or adopting this particular dog, was your fault at all. You were misinformed by the rescue. I do actually think you'd done enough research, it's not reasonable to expect newbie owners to be dog experts. You were relying on the rescue to advise, and you followed advice.
However, your actions after the dog started trying to kill your cat are inexcusable. You are behaving very callously towards your cat. Her life is at risk every single day and you don't care, all you care about is being - rightfully - told off by people on this thread for your cruelty, and not upsetting Diddums by putting him on a lead. He's literally trying to slaughter your cat! Whatever inconvenience he might face by being on a lead does not compare to the threat of being ripped apart limb from limb.
The moment he first hunted your cat, you should have done everything to prevent his access to her. He should NEVER have been permitted to chase her again. You should put up cat shelves so she has high walkways inaccessible to him, and you should grant her the whole upstairs to herself. When you feed her, you should put him in his crate.
You should be aware that some behaviours cannot be trained out of dogs. Prey drive is often unfixable.
Even if you can fix this, the psychological damage has been done to your cat. She will likely never feel safe in her own home as long as he is present. You've left it too late and it's cruel and selfish to force her to live with him.
Rehome one of them, or live separately from your partner.