Read Eloise at the Plaza ... and check out the Plaza across the street from FAO Schwarz.
Also, take a horse and buggy ride at Central Park while you can. I did this when DC was 5 and he was ecstatic.

American Museum of Natural History
Central Park Zoo
Bronx Zoo
Children's Museum of Manhattan
FAO Schwarz
Central Park
Intrepid Sea, Air, and Space Museum

The may like to ride the red double decker tour bus or the ferry to Ellis Island.

Also, try to ask this question on Trip Advisor because you may obtain more information and a better list from New Yorkers. http://www.tripadvisor.com

Staten Island Ferry is fun, if the weather is nice. If they are transportation-focused, the bus/subway museum in Brooklyn is good. I agree with PP, just random walking around is fun.

check out Time Out kids new york. Also, there always seem to be some zillion bubble show play showing in New york that could be good for that age group. I think that is a pretty young age, so maybe just go the places you want to go/ see.

Try the Highline, to get them outside and working.

We went when our kids were that age. They really enjoyed just walking (stroller and walking) around the big avenues with the skyscrapers..we did the CHildren's Museum which took several hours of entertainment, and we went to a playground in Central Park, despite the cold (we went in November). We also did FAO Shwartz, Serendipity and more random walking around. Oh the the Central Park Zoo too!

3 and 5.
What sights are a must?
Has anyone been to the children's museum? Is it worth it? We are huge fans of the please touch museum in philly... how does it compare?
Any other shops or things we should def go to?
Thanks.