I get your point, and I agree with you. I really do. Your daughter was wronged, first by the kid, then by the school.

I have also found that one of the most useful, constructive approaches to dispute resolution is being able to understand the other side's position so well that you can state it back to them in such a clear way that they say "yes, that is what our position is."

If I might suggest this approach as an opener. Obviously the school wants to be able to include children with various disabilities and give them as good an education as possible. People (at their best) don't work with kids, or disabled kids, because of money. They do it because they love kids and want to help them. They are trying to help this kid, and probably think they're doing the right thing.

He has cognitive limitations that can make some important concepts really difficult to learn, including some important socialization skills.

I think something will help you drive a really convincing point home, namely that not only are they doing your daughter an unjust disservice, but they are doing the 10 year old a disservice as well.

Ask them to think through exactly what will happen to the 10 year old when, once he turns 18, he grabs a 7 year old kid, yanks off their pants and underwear, and spanks them. As a "joke."

He would almost certainly face criminal charges and probably become a registered sex offender. He might not get convicted because of his mental status, but he is not going to get a free pass like they're giving him here.

If this kid is going to be integrated into the school, if he is going to be socialized with other kids, he absolutely needs to be taught, and learn, the fundamentals of appropriate behavior. What they are teaching him right now is that he can strip people naked and hit their genitals. He needs to learn that that is absolutely not permissible.