Anyone setting up such a Liturgy must always remember that the parish pastor is the one answerable to the bishop for whatever that you do. As such, you must go through any contentious points with the parish pastor and get his direction and approval before any controversy erupts.
There has been occasions when I meet the parish pastor and lays out to him the various options for him to decide. Real life sometimes can be complicated and Church Laws are often not as all-encompassing as some Catholics would like to believe.
There are several key documents that will guide you in running the Liturgy of the Word which you should familiarise yourself with. It is often not enough to read these documents as there is sometimes a context that may not be apparent from a casual reading. It helps to have access to an understanding pastor, or a trained liturgist to help elucidate these documents.
General Instructions to the Roman Missal
This gives you the instructions on the mass and a good understanding of why the mass is the way it is. Most of the instructions are really for the priests and instructions for the congregation is normally in relation to the priests' actions. The Roman Missal (sometimes known as Sacramentary, especially in US) provides more instructions to the congregation, normally in red-inked rubrics.
Bear in mind that these are General instructions and are not intended to be specific for all scenarios and all locations. Often, the GIRM is silent in a particular action you are looking for. This means the GIRM neither mandatorise or prohibit the action, although I often get approached in person or online by laypeople (it is always laypeople in my case) who incorrectly thinks that if it is not in the GIRM, it is not allowed. The reason why the GIRM may not explicitly prohibit a certain action is because the Church foresee one or more scenarios where it may be allowed. You will have to discuss with your parish pastor to see if the proposed action is appropriate for the scenario you have in mind.
The GIRM can also differ for different countries. You may be able to find a softcopy applicable to your country if you google it online. The one for England and Wales is more easily found here. In addition, some dioceses have issued clarifications to the GIRM, which may prohibit certain actions. Confusingly, some diocesan directives are issued as recommendations or advisories, which mean that they do not madatorise or prohibit. This means, you still have to talk to your parish pastor.
Directory for Masses with Children
This was issued in 1974 from the Vatican and intended for the Church worldwide. As far as I am aware, there is only one version and you can get it here. The parts relating to the Liturgy of the Word nos 42-49 (these refer to the paragraph numbers) are especially relevant but you should also read the introductory paragraphs to help give you the necessary context and direction (I know it is heavy going but there are not that many pages).
One problem is that the DMC often conflicts with the GIRM, giving rise to a happy hunting ground for critics of Children's Liturgy of the Word. My position is that where they conflict, the specific instructions always take precedence over the more general instructions. I follow the DMC for specific guidance and use the GIRM to understand the context.
Another problem that things have moved in the forty years since its issuance. Masses for children was a new thing in those days and there were few, if any, Children's Liturgy of the Word. So, you may need to discuss with your pastor how the DMC would be applicable today.
In addition, a few Bishops' Conferences and dioceses worldwide have issued guidance on Children's Liturgy of the Word. The most authoritative in my view is the one issued by the Bishops' Conference of England and Wales, available at the Archdiocese of Westminster website, here. As the most explicit Guidelines that I have come across, I often refer to it as the persuasive authority on Children's Liturgy of the Word even in jurisdictions outside England and Wales.
Where you can, attend as many training with as many speakers as you can. This is because most speakers, including yours truly, come from a specific background or persuasion, and it is good to understand many different points of view.
Also someone's background often colours what they say. As Church Laws are not as comprehensive as we would like them to be, there are often much grey areas to which our personal opinions and preferences would be applied. A good speaker would make clear what the boundaries of church laws are and where her or his personal opinions are given.
Is Children's Liturgy of the Word permitted under Church Law?
If you mean a document issued from the Vatican laying down explicitly the conditions and the manner in which a Children's Liturgy of the Word may be held, then I will have to be honest and say that I have not seen one. The closest is the DMC mentioned earlier, which provides for a separate Liturgy of the Word for children in a single paragraph (no 17) in certain conditions but there is no guidance on how it is intended to be conducted.
"Sometimes, moreover, if the place itself and the nature of the individuals permit, it possibly will be appropriate to celebrate the liturgy of the word, including a homily, with the children in a separate, but not too distant, location."
As a result of this gap, I have come across Catholics wh propositioned that the GIRM at least implicitly exclude such a practice. According to them, only the priest can read the gospel and deliver the homily, both tasks which they see as usurped by the Children's facilitator. However, the DMC does provide for the pastor to delegate the task of speaking to the children after the Gospel to another adult in no.24. To be sure, you may want to have a proper mandate issued by the parish pastor. Maybe a commissioning rite for all facilitators would help.
Ultimately, the bishop is the chief liturgist of the diocese. It would really be up to him to decide whether to allow or not to allow separate liturgies of the word for children. I am not aware of any bishop who have prohibited them. Most bishops are guided by the respective bishops' conference, which happily for us the Bishops' Conference of England and Wales have obliged with their Guidelines for Liturgy of the Word with Children. It provides a structure for the celebrations and even some examples of prayers that may be used. So, talk to your parish pastor if there is any doubt or queries from the community.
The Guidelines issued by the Bishops' Conference of England and Wales, while not explicit about it, seem to recognise a liturgy celebrated by children and leader(s), who are not the priest celebrant. Throughout the document, the leader, the readers and the priest celebrant are referred to as different roles, implying different people.
There is nothing in those Guidelines that require the leader and readers to be priests.
Do we have to use all readings at mass?
There are three Sunday readings and it is obvious that it is usually difficult to hold a dialogue on all three readings in the short time available. One may be able to do it with a didactic lecture but that is not going to be appropriate, would it?
The DMC (no 42) allows up to two readings to be omitted, but the Gospel must be read. To me this works fine for most Sundays, when the Gospel reading is the more accessible one. But what happens if you find the Gospel reading too difficult for the children and prefer to work with the first or second reading? This is a common problem during Easter. Properly speaking, you should read the reading you wish to work on as well as the Gospel reading. Practically, I find that it may give rise to confusion among children to have two readings, particularly if only one reading is commonly read on other Sundays.
The DMC (no 43) even provides that if all readings prove to be unsuitable for the children's capacity to understand, then you may choose another reading from the Lectionary or even directly from the Bible, taking into account the liturgical season. I wouldn't recommend that as the children should follow the liturgy of the community and they often go home & talk to their parents about what they learnt - best that what they learnt should be something relevant to what the adults have heard at the adults' mass. Whether DMC 43 obviate the need to read a Gospel reading if the sole reading selected is not from the Gospel, is unclear. If you are unsure, again talk to your parish pastor.
If the reading is too long, feel free to reduce it. This is allowed by the DMC, provided you do it with understanding. The Sunday Missal sometimes allow a shorter version for long readings, which is something you should consider. The DMC notes that it does not always follow that the children should always get the shorter reading. I have sometimes chosen the longer reading when a shorter reading is available as an option or even the section that the shorter option allows us to drop and drop the recommended shorter section instead. It all depends on which part of the reading is the appropriate anchor for the discussion that follows.
Can we simplify the readings?
The DMC (no 45) discourages the paraphrasing of the Holy Scriptures and I agree that Children's Bibles should not be used. However, some countries and dioceses may have sanctioned the use of certain Bible translations more appropriate for children and these may be allowed for the Liturgy.
I do, however, substitute individual difficult words (but not entire sentences) with simpler ones that children can understand - I really do not want a hand to go up with "What does adultery mean?" during a solemn reading. I also translate units of measure if an archaic one is used and if it is important for them to grasp the context during the reading itself. For guidance, a denarius is one day's wages - about US$200 on average in the US, less if you are a furloughed Federal employee.
There is no provision for dramatisation of the readings in the DMC or any Guideline I have seen. It is also highly impractical as proper dramatisation requires plenty of preparation and practice, which is not available for a simple Sunday mass.
Dramatisation is allowed, however, during the discussion to bring home the message or to provide material for discussion - eg., how do the actors feel in that situation? Such dramatisation does not need to be well performed and can thus be done rather quickly.
Can children who have not taken First Communion go up for a blessing instead?
I used to allow it but after discussing it through with my parish pastor, we agreed to stop the practice.
From a liturgical point of view, it does not make sense as we already have a final blessing at the end of mass. If a child gets a blessing during communion, does the child still need a final blessing? Pastorally, it is too reminiscent of the actions of communion that there is a risk that children could lose the sense of anticipation of First Communion Day.
Still, it is not easy for a priest to refuse any child the blessing and it is common for smaller children to queue up along the priest's route back to the sacristy to get their blessing.
Can the children hold hands at Our Father?
I recognise that this is a contentious issue particularly in the US, with people quoting personal experience of hands of those who don't hold hands being grabbed by those who do. Still, there is no prohibition against it anywhere. I heard anecdotes of US bishops heavily disliking the practice during their meetings, but evidently not enough to prohibit the practice. A question on the posture of hands at the Our Father on the US Bishops Conference website had a reply that the GIRM is silent on it.
There are some laypeople who insist that where the GIRM is silent, it means that it is not allowed. In which case, any posture of the hands during the Our Father by the congregation is not allowed since the GIRM is silent on it.
It is common, though not universal, among Children's Liturgy of the Word to have hand-holding at the Our Father. I think it is fine provided that it is done with sensitivity at two levels. First, no child should be forced to hold hands and children should be taught not to grab the hands of someone who has made it clear (then or in the past) that they do not wish to hold hands.
Also, be sensitive to the community. If your community or your parish pastor is one who frowns on the practice, don't pursue it!
If you have any further questions, please let me know.