I would first sort through the pics and organize them a bit - chronologically, making note of particularly memorable pics and events. Separate them into categories for kid 1, kid 2, and you. Some pics you may want to have duplicated to include in 2 or all 3 of the albums you're planning. You may also want to duplicate the more special pics so there's no chance of ruining an original in the crafting process.
I would start by working on just the MOST major events and the most meaningful moments in each of their lives. Do a page or 2 for each event. Don't plan too much or it's easy to feel overwhelmed, easier to give up, etc. Just start with the most important and work down from there.
You can duplicate pages for them and yourself if you want, or you can make them different - that's your creative decision. The pages for yourself could be more personal about looking at them as a mother, the pages for their books can be more objectively about them, or the pages for them can be like a communication from you to them - lots of options.
As to tools - you really can do this with just a paper trimmer (or even less techy - an xacto knife, a ruler, and a cutting mat will accomplish the same thing), some adhesive, and some good acid-free scrapbook paper.