Some of the fear of cats will be learned behavior, some of it will be instinct. It could also be that the ability to learn the behavior has genetic links (think naturally smart mice). If you keep this cycle going, eventually you have a group that should be higher than your initial 50% fear rate. It's possible that you can't selectively breed for this, but it's also possible that you can. This is in some ways the inverse of how humans domesticated many different species.
The parent sees/smells a predator and flees/hides; the young flee/hide with it. They learn that the response to the stimulus associated with the predator is to flee/hide.
Not speculation - emerging but well supported science: https://en.wikipedia.org/wiki/Animal_culture