Is there any eye damage from looking directly into these high power (1-3W) led lights, especially for young children ?
The sun has much higher luminous intensity than any modern high power LED, plus high levels of UV danger, but human beings have survived thousands of years without blinding themselves by glancing at the sun.
The saving grace is the blink reflex.
Some very high power lasers can cause damage before the eye can blink, which makes them quite dangerous, but even 5W LED lights do not have high enough power levels to fall into this category.
There are other cases where the blink reflex may not offer enough protection, such as when the optical wavelength has strong IR or UV components (this problem is found in common sun lamps), but white LED's emit energy almost 100% in the visible range only.
I personally would worry more about the kids eating the batteries, or shorting something out and causing a burn or battery explosion.
AA alkaline batteries are probably ok, but I would NEVER let kids play with a light that uses CR123 (or any lithium batteries) or NiCad batteries, as they both have toxic elements and very high energy densities which should not be placed in inexperienced hands.