Thanks everyone, I will take this all under consideration.
I know this is an old post, but I'm really hoping you can let me know what you did. I'm in the exact same boat: Chicago, brick basement, less than 3 feet between me and the neighbor. The gangway between the houses is cemented over, so definitely not an easy thing to dig. All the same issues you described!
Part of my problem was improper gutters which allowed all kinds of water to get on the siding, potentially even inside the wall, or at least right down to the cement in the gangway, which is about level with the top of the brick foundation. Above that, it's a frame house. I had to completely replace the soffits due to the rot and ice damage these gutters caused. Hopefully the new ones reduce the water pressure from outside, but the damage is likely already done.
I have the same problem with a home in Evanston. Hoping to find someone in the Chicago/Evanston area who works on this type of problem... any suggestions welcome!
Check with U.S. Heritage Group , Inc. Chicago , Il 60641 773-286-2100.
The above company will find you someone in your area to help you out.