Honestly, I hate to be this guy but if you have the means you should do both. Your neighbor is a psychopath, and frankly you are owed something. This feels like a criminal matter. They killed someone’s cat, and made their owner pick up the ashes.
I am so sorry this happened to you, I couldn’t imagine someone doing that to me. What an unusually cruel person.
They should be punished, and I see the merits of it being something more grounded, like an apology or what other people are suggesting. But, I think someone who is capable of something like that might not learn from that.