Simultaneous catch is awarded to the offense in your example.
Further, you should really emphasize the non-contact nature of flag-football and penalize one or both players for any wrestling or intentional ripping of the ball, esp. after the whistle sounds.
In flag football, there is NO slapping or ripping of the ball. That's a major foul, unsportsmanlike.
There is a sport body out there called NIRSA, and I think this set of rules is fairly good for flag football.
http://www.campusrec.uiuc.edu/intram...agfootball.pdf
Also, they have a variant for 4-on-4:
http://www.campusrec.uiuc.edu/intramurals/rules.html
I am not sure what set of rules you are following, but I've never heard of ANY allowable blocking in flag football (can only set picks).
Enjoy!