Schizophrenic Diane Wilson (45) told Susan Topping she would slash their car tyres during the outburst in the street. She had forgotten to take her medication, but could now be facing a jail term after the trouble.
The town's magistrates were told how Wilson and the victims had lived next door to each other for 15 years and had not spoken for 14 of them.
Mrs Alex Mann, prosecuting, said: "It's clear the alcohol is an issue. She had been drinking about two bottles of wine. She was outside, with a knife, making threats to damage the car and threats to the person."
Mr David Norman, defending Wilson, said: "She was watching the football. She had quite a lot to drink. She had forgotten to take her medication and one suspects that due to the alcohol, that has had an effect on her behaviour. From the very beginning, she has said 'It's not me.' It's just not the way she normally behaves."
The solicitor continued: "She recalls one of the neighbours saying, 'Diane, you must go into the house. You have got a knife in your hand,' and that's what she did. She didn't remember anything that went on except that."
Mr Norman said: "I believe it's totally out of character. I would be surprised if she actually meant to cause any other harm other than to frighten people. I would have thought if there was a major problem here it would have manifested itself earlier than it did on this occasion."
The defendant, of Beachley Square, admitted using threatening, abusive, or insulting words or behaviour; possessing a sharply pointed blade; and threatening to damage property on June 22. She will be sentenced at the end of August.
The Bench chairwoman told the defendant: "There could potentially have been a risk of serious harm to somebody."