Please please please check out fearfuldogs.com as this is very similar to the situation that inspired Debbie Jacobs' fabulous work.
I also think there is a shydogs Yahoo! list for extra support.
Its going to take some time and lots of patience - Click to Calm is also a great resource as is Nicole Wilde's Help for your Fearful Dog. These are available from dogwise.com or amazon.co.uk
Make sure she has a safe den that she can retreat to and stay in if she so chooses.
Start with lots and lots and lots of targeting work. You may be way off that yet so just start slowly getting her happy in your presence. She can literally earn all of her meals this way.
Establish her safe distance - how close can you get before she exhibits distance increasing signalling e.g. whale eye, lip licks, yawns etc. Sit side on and toss food gently to her one piece at a time. Toss the food straight to so that she doesn't have to move or compromise to get it.
Don't lure her to approach with food but have it go to her.
Also use negative reinforcement to teach her how to control scary situations so that she can develop some confidence.
If you approach and she shows appeasement gestures, stop and move away - reward her with what she wants i.e. distance
This teaches her that polite, subtle signalling is all that is needed to get distance - she doesn't need to escalate to more active avoidance or escalated distance increasing signalling e.g. growling.
Check out Turid Rugaas' work for more on signalling and the sticky thread in this forum.
Teaching her to move away from scary things is also important - if she moves away don't pursue her,let her increase distance (once its safe to do so).
I wouldn't feel that going for walks to big noisy, new and active places is urgent right now. I would work on improving her confidence around the house and garden right now and getting rock solid with that.
Plenty of short training sessions built into everyday life are sufficient mental exercise for her.
Does she have any interest in toys, or have you any idea? Start with quiet toys e.g. just rolling a ball across the floor - click and treat if she tracks its movement. Teaching an interest in toys can be a great way of motivating and confidence boosting in fearful dogs. Start slow.
The main thing is to move at her pace - not yours and not your expectations. If she is as undersocialised as her history suggests this will be a long road and may never by 'perfect' but you can certainly give her coping mechanisms so she can deal with the world.
Lots of special time with your other dog too
In time they may bond and the other dog may be a great booster to the fearful one.
Well done for taking her on - best of luck
