Directions In a medium bowl, combine flour, baking powder, baking soda, nutmeg, and salt; set aside.
In a large bowl, beat butter with an electric mixer on medium to high speed for 30 seconds. Add granulated sugar. Beat until fluffy, scraping the sides of the bowl occasionally. Beat in oil, egg, vanilla, and lemon peel.
Alternately add flour mixture and buttermilk to butter mixture, beating on low speed after each addition until combined. Divide dough in half. Cover and chill dough about 3 hours or until easy to handle.
Preheat oven to 375 degree F. Line a cookie sheet with foil; set aside. On a well-floured surface, roll dough, half at a time, to 1/4-inch thickness (keep remaining dough refrigerated). Using 2-1/2-inch cookie cutters, cut dough into desired shapes. Place 2 inches apart on prepared cookie sheet. Cut small shapes out of the cookie centers.
To make stained glass cookies: Place hard candies in a small, heavy resealable plastic bag; seal bag. Finely crush candies. Spoon enough crushed candy into each center cutout until candy is about 1/8 inch thick. If making ornaments, use a drinking straw to make a small hole at the top of each cookie.
Bake for 8 to 10 minutes or until edges are firm and bottoms are lightly browned. Transfer foil to a wire rack. If making ornaments, use the straw to remake the holes if they have sealed. Let cookies cool on foil. Using a narrow metal spatula, carefully remove cookies from foil or peel foil from bottoms of cookies.
If desired, tint portions of the Royal Icing with food coloring. Frost cookies with icing and, if desired, use the icing to pipe designs on cookies. If desired, decorate with colored sugar, nonpareils, and/or small multicolored candies.
Royal Icing: In a large bowl, stir together 1 3/4 cups powdered sugar, 4 1/2 teaspoons meringue powder*, and 1/4 teaspoon cream of tartar. Add 1/4 cup warm water and 1/2 teaspoon vanilla. Beat with an electric mixer on low speed until combined. Beat on high speed for 7 to 10 minutes or until mixture is very stiff.
Jelly-Filled Sandwich Cookies: Proceed as directed through Step 3. Preheat oven to 375 degree F. On a well-floured surface, roll dough, half at a time, to 1/4-inch thickness (keep remaining dough refrigerated). Using a 2 1/2-inch cookie cutter, cut dough into circles. Place 2 inches apart on greased cookie sheet. Using a small heart-shape cutter, cut out centers from half of the cookies.
Bake for 8 to 10 minutes or until edges are firm and bottoms are lightly browned. Cool on a wire rack. Sprinkle powdered sugar on cutout cookies. Spread 1 teaspoon jelly on each of the solid cookies; top with cutout cookie. Makes about 24 sandwich cookies.
*Meringue powder is a mixture of pasteurized dried egg whites, sugar, and edible gums. Look for it in the baking aisle of your supermarket or at a specialty food store.