Since it's outside, I'd probably not do a craft, except for maybe sidewalk chalk! I don't think you'll need to do games unless they start getting unruly, I'd probably just have a ton of outdoor toys; balls, hula hoops (which incidentally Target has for $3 right now, the cheapest I've ever seen them!), chalk, ride-ons, bubbles, etc. Also those punch balloons are really fun. I think they'll keep themselves entertained. Cookie/cupcake decorating was a good idea too, but being outside that might attract bugs. You might want to have a tub filled with ice and water bottles, juice boxes, milk boxes, whatever. You can get a bunch of cheap packages of bubbles and inflatable balls at Oriental Trading if you have time and that way they can all take home a party favor too!
As far as including them, I'd say no. Of course if one of them wants to play, then sure it's probably fine, but I'd encourage them to play by themselves!