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Yes, I am disappointed with my manager, especially given the number of times and the insistence with which I've raised this. It's clear to me both that he's afraid how this will reflect on him to his manager, and he's afraid of how the other engineer will react. He wants to keep the peace, which means me just sucking this up.

I don't want to leave this job unless I've exhausted all other possibilities. With this exception, it's great.

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But the thing for your manager is, if you leave because he didn't handle this, that will also reflect badly on him. And it sounds like leaving because of this is a real option for you. You wouldn't just be saying it to blackmail your manager - you're really thinking that you may have to leave because of this.
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