To second what Oakleaf and Techno-Tart mentioned, going to one of the League Road I courses might be a good start; since Road I basically covers traffic skills and defensive cycling.

One thing that we do here locally to ease folks into urban cycling are the "Critical Manners" rides once a month, where we get together and do a ride under supervision (LCIs at the front and back of the group) in early evening downtown traffic, stopping along the way at a local restaurant for supper or snacks, then looping back to the starting point.

I used to be deathly scared of heights. I got it literally beaten out of me in ROTC and the officer training classes, where they made me not only climb up all that stuff, but then jump off of them when I got to the top. I can't speak to the gentleness of the method, but it certainly worked by making you face and ultimately overcome your fears.

Tom