Absolutely NTA. I have a nervous dog/pup who is a sweetheart, loves my children and behaves beautifully- but she gets scared easily and a scared dog can snap. When my nephew brings his 6 month old daughter to visit, my dog is safely in another room, just in case. They wouldn't even have to ask, it goes without saying that nervous or reactive dogs are kept far away from babies and toddlers. There's way too much that can go wrong, and things can change in a split second. Nervous energy, excitement, strangers, babies, unpredictable behaviour, noise, can all overwhelm a dog, and can lead to nips, bites, overbearing behaviour, or feeling cornered. You've done exactly the right thing and nobody can argue that your first priority is keeping the children safe and the dog in a calm, stressfree space while the babies are there.

If you were making demands about how they keep their dogs in their own home, that would be different. But you're not comfortable with having the dog around the babies (quite rightly!), so you offered an alternative and they don't like it.

NTA.