The Collaborative International Dictionary of English v.0.48:

Bully \Bul"ly\ (b[.u]l"l[y^]), n.; pl. Bullies
   (b[u^]l"l[i^]z). [Cf. LG. bullerjaan, bullerb[aum]k,
   bullerbrook, a blusterer, D. bulderaar a bluster, bulderen to
   bluster; prob. of imitative origin; or cf. MHG. buole lover,
   G. buhle.]
   1. A noisy, blustering fellow, more insolent than courageous,
      who threatens, intimidates, or badgers people who are
      smaller or weaker than he is; an insolent, tyrannical
      fellow.
      [1913 Webster]

            Bullies seldom execute the threats they deal in.
                                                  --Palmerston.
      [1913 Webster]

   2. A brisk, dashing fellow. [Slang Obs.] --Shak.
      [1913 Webster] Bully