Can you stop a dog from barking like mad everytime people walk by the house?

We have two dogs. Our six-year-old Shepherd very rarely barks, but our two-year old Spaniel just goes crazy when people walk by, especially if there is a dog with them. It just started becoming a problem in the last six months, when new neighbors moved in, and their dogs are HORRIBLE about barking all hours of the day and night, sometimes over nothing. It drives everyone in the neighborhood crazy, and I don’t want a dog that does that. I don’t want to use physical means, as I’d be beating her all the time! What I have been doing is picking her up and putting her in “time-out” in the bathroom (where I often forget she’s in there! LOL!) I’m very consistent, and it seems to be working, but slowly. Any better suggestions?