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we do inside of northside park on 125th on a leash! and if you want to stay with your small dog then the clarion is great!

So sorry, but your pups aren't permitted on either the beach or the boardwalk from May 1 to October 1.  And no dogs are allowed in any restaurants (even outside ones) unless they are service dogs. You are more than welcome to walk them around town as long as they are on a leash.  And there is a dog park on 94th St. that your dogs can run around freely, but you need to get a permit to enter the park.  Northside Park on 125th St. is leashed dog friendly and a great place for the doggies to find new things to smell and explore. 

Here's the info on the permit for the dog park:
http://oceancitymd.gov/Recreation_and_Parks/dogplayground.html

The Serene and Barefoot Mailman are two hotels that I recommend for pets.  Try Northside Park for a wonderful place to walk your dog.

Most places in OC are not pet friendly.  Dogs are not allowed on the beach  during summer but there is a dog park on 94th St and walking trails at Northside Park to walk dogs.  With that said, there are a few hotels that do accept small animals for a fee.  

I found this site with a list of all the pet friendly accommodations in OC.  Have a great vacation!

http://www.petvacationhomes.com/search/Maryland/Ocean+City/vacation-rentals/index_706.html

Dogs are allowed in OC, but they are not allowed on the beach or boardwalk from 1 May to 30 September.

They are allowed in many of OC's parks (on leash) and there is a dog park at 94th Street. You can get more info about it here: http://ococean.com/things-to-do/oc-local-parks-and-playgrounds/ocean-city-dog-playground

Dogs are allowed in certain areas of the beach at the Assateague National Seashore, but not Assateague State Park. Here is the info from the National Seashore website:

Pets are permitted in the Maryland portion of the National Seashore. All pets must be on a leash no longer than 6 feet at all times.  
Pets are completely prohibited in the following areas:
- all backcountry campsites
- nature trails
- lifeguard-protected beach
- north of the State Park to the Ocean City inlet
- the entire Virginia portion of Assateague Island*

*Pets are prohibited in the entire Virginia portion of Assateague Island, even in your car. The U.S. Fish and Wildlife Service manages nearly all of the land area on the Virginia portion of Assateague Island as a National Wildlife Refuge.

There are several pet friendly properties in OC. Here are a few:

I believe the only one on the boardwalk is the Safari Hotel at 13th Street (http://www.safarimotel.net)

Clarion Fontainebleau - Ocean front, 101st Street. This is a great large property with lots of amenities. Most of the rooms are ocean and bay view (http://www.clarionoc.com/)

Barefoot Mailman - Ocean block on 35th Street (http://www.barefootmailman.com/)

Windjammer Apartments - Ocean front, 46th Street. A nice older property with studio, 1BR, 2BR, and 3BR apartments. I stayed there for many years. (http://www.ocwindjammer.com/)