Never been, but have thought that Makriyialos In the south-east looks lovely!
http://makriyialos.com/index.htm
Perhaps a bit quiet though for the kids?

Alternatively, Georgioupolis (north coast, between Chania and Rethymnon) could be a good base. It's a good long beach
http://www.georgioupoli.net/georgioupoli_gb.htm" target="_blank" rel="nofollow" class="break-word">http://www.georgioupoli.net/xgb.html?http://www.georgioupoli.net/georgioupoli_gb.htm
http://www.crete-connections.com/Places/Georgioupolis.htm

Hersonissos would be a good bet. We took our g/kids there and found plenty for them to do over 2 weeks.
Star Beach has a small safe water park for the kids, bigger slides for the older end as well and a sandy beach.
You are central on the island with a good bus service to Stalis or Heraklion. There's also a Water City water park which isn't too far.
Knossos, well worth a visit and plenty of boat and coach trips from the area.

I might just go back now that my jollies have been blown out of the water.

I would avoid Malia - although it has lovely sandy beaches and lots to do it definately attracts the more 18-30 scene with a lot of clubs that stay open all night and drinking. I had a great time there but it is not family orientated.

I've tried every corner of the island with and without young children. On all counts I have settled for the Chania area, especially to the west. It's the most naturally beautiful part of Crete with great beaches, the White mountains and plenty to do, notably Falasarna Beach (voted best in Europe), Elafonisos (pink sand), Limnoupolis water Park and Chania is stylish and cosmopolitan. You'll also escape the drunken Brit hordes! The night life takes every shape and will certainly satisfy you. It's fun, fashionable and relaxing and you're never far from local Cretan culture.
Enjoy wherever you finish up.