1 cup softened unsalted butter
3/4 cup sugar
1 egg yolk
2 teaspoons grated lemon peel
1 teaspoon vanilla extract
2 1/4 cups flour
1/2 teaspoon salt
6 ounces red and/or green hard candies
additional sugar

Beat butter and sugar in large bowl till well blended. Beat in egg yolk, lemon peel and vanilla extract. Add flour and salt and beat till mixture begins to clump together. Divide dough into 3 equal pieces. Flatten each piece into disk; wrap each in plastic wrap and refrigerate 2 hours. (Can be prepared 2 days ahead. Soften dough slightly at room temperature before rolling out.) Finely grind red and/or green hard candies separately in processor. Transfer each color of candy to separate small bowl; cover candies and set aside.
Heat oven to 375°F. Line 2 large baking sheets with parchment paper. Roll out 1 dough disk on lightly floured surface to 1/4 inch thickness. Using 2 1/2-2 3/4 inch diameter cookie cutter or biscuit cutter, cut out cookies. Using small (about 1 inch diameter) cookie cutter, make cutouts in center of each cookie. Transfer cookies to prepared baking sheets. Spoon ground hard candies into cookie cutouts, filling cutouts completely to same thickness as cookies. Sprinkle cookies lightly with additional sugar. Repeat with remaining dough disks, ground hard candies and additional sugar. Reroll dough scraps and cut out additional cookies.
Place on baking sheets; fill with hard candies and sprinkle with additional sugar. Bake cookies 8 minutes till firm and light golden and ground candies look translucent. Cool cookies completely on baking sheets.