Answer:
C. walking down the street
Step-by-step explanation:
The correct phrase to fill up the blank is "walking down the street", because it is believed that the action was still in the continuous form. Also, since the pattern structure of the sentence lists the sequence of activities in a continuous form, that makes every other phrase in the sentence to follow a progressive format. So it follows that the correct rendering of the sentence is;
"My mother and I were walking down the street in our neighborhood, admiring the newly-blooming dogwood trees, when suddenly we were approached by our grouchy neighbor Mr. Beens".