If you use acrylic fabric paint it will stay on and yet still be soft. It also cleans up easily and isn't too expensive. I've done it on teepees that I've made. I put the paint on styrofoam plates, spread it out and let them put their hands in it and press it onto the fabric. You might have to help little ones, they don't want to flatten their hands. Make sure you have a lot of extra squares because there will be several that don't turn out right. Since you're doing the sewing and providing the fabric why not have each mother pay for a bottle of paint. Pick the colors you want to work with, write them down, put them in a hat and let them draw a color out. That way everyone will be really involved in it. You could also tie it and have everyone help at one of your meetings.