The incident was reported to them as a guy with a pistol who was scaring people. Although whoever reported it said it was probably a kid and a fake gun, those details were not conveyed to the officers here. If anything, it was the dispatcher not conveying those details who was negligent.
Given what they knew, I don't see any problem with their approach. This in their minds was a situation which had to be confronted directly and neutralized because it could have been dangerous not only for them but for civilians as well. If we want police to undertake the correct approach in every situation, officers need to be given accurate information including everything that was reported by the citizen who made the call.
Even assuming, however, that there was some negligence on the part of the police here, a criminal case has to be proven beyond reasonable doubt. Although the grand jury was only looking for probable cause, they had to consider whether the case had a reasonable chance of success at trial. Given what the officers knew going in and the fact that the toy gun didn't have the identifying orange cap, there is reasonable doubt here and because of that a trial would have been a waste of tax payer money.