I dont think that you have over-reacted at all. I think the fact that the teacher looked at you waiting for you to react says it all. She obviously knows that she was wrong in what she was doing. Nessa is right they are not allowed to do anything like that at all, my SIL works in one and they aren't even allowed to say no(silly concept to me) so to pull a child by the arm, that's a definant no, no. I agree with what a few of the others have said, put in a formal written complaint and start looking elsewhere.

Goodluck with it all hun.

Love