Fun distractions:
Red Vines / Twizzlers licorice - bit off the ends and it works as a straw for drinks on the airplane.
Use the red vines licorice and m&ms to play tic tac toe. Winner gets to eat the m&ms (or use skittles). Learn colors and strategy.
If you have an iPod, load some audiobooks (check out your public library, ours has tons - we simply delete after we've listend) get a headphone splitter so both kids can listen at the same time. You may have to reserve them, so search the catalog online and put holds on them. (Kids fall asleep easier with audio books than movies).
Get a blank notebook - I buy a drawing paper one that's 5x7 at Michaels - and new colored pencils for budding artists. don't forget a small pencil sharpener and put the pencils in a pencil case instead of the box. Or if you have a future engineer, buy a small spiral graph paper notebook at Borders in the greeting card section.
Limit them to one stuffed cuddly animal or doll. I've occassionally gotten a new friend for the trip that's smaller and fits better in our carry-on bag. I found the cutest little bunny in an orange sweater that was about 4 inches tall at Whole Foods before the spring holidays.
Have small backpacks for the kids to wear. They should be able to carry some of their stuff. Make sure they're really light weight though and not over stuffed.