Choose the correct form of tense for the given sentence:
We ______ our dinner when you called.

The past continuous tense is used for an ongoing past action or two actions happening simultaneously. ​
1st action- Past continuous tense i.e. Sub + was/were + V1 + -ing + Obj.
2nd action- Simple past tense i.e. Sub+ V2 + Obj.
For example, ​I was playing when she phoned me.
According to the rule and the example is given above, 'were having' will be used in the blank part of the sentence.
Correct Sentence: We were having our dinner when you called.