I think there are some other aspects to it, even if the weapon is realistic. As you say yourself, it boils down to how reasonable it is to feel threatened - and I feel that the probability of facing an actual bad guy toting an AK in the middle of the street in broad daylight, vs a kid playing with one, should factor into this decision.
The other thing is that I think that police in particular should be held to a higher standard of scrutiny in such cases, and even when there were legitimate signs of danger, if they could be reasonably interpreted either way, cops should err on the side of caution even when it carries a risk to themselves - because the alternative is to place the risk on the populace at large, and the whole point of police is to reduce said risk!
In other words, cops are paid to get into the danger's way to protect the rest of us. This is also an example of that, just a non-obvious one - they could have protected the kid by not being trigger-happy and risking the AK actually being real and fired at them. My opinion is that they should have.
What we have instead is a situation where cops actually get away with things that would send a civilian to prison, everything else being equal. Prosecutors tend to be really unhappy about pressing charges against police, so if they can write it off as "mistake" or "negligence", and just reprimand or demote them, they do so, even when injury or death is involved. The result is that police in US tends to be extremely trigger happy, with numerous cases of mistaken identity, wrong place, mistaking something for a weapon, or miscommunicating the order to drop a legally carried something that could be used for a weapon, ending in deaths of innocent people.