How about making a nativity?
I do this with third and fourth grade art students, but if you keep it very simple, you could make a nativity scene. I use Sculpey for the figures, which are no more than 2.5 to 3 inches high. Of course, Jesus is much smaller. For your age group, you could use empty thread spools for the bodies and small, wooden balls for the heads. Dress in fabric scraps, and use yarn for the hair.
I use foam core covered with paper mache for the stable. The piece measures about 3.5 to 4 inches wide and about 16 or so inches long. Score and fold up to make the building. See http://www.kid-at-art.com/htdoc/lesson26.html at my Web site to learn more about how to work with this material.
When I start the project with third graders, they are able to complete the stable and three figures (Mary, Joseph, and Jesus). The next year they can add to their set by creating the Wise Men, shepherds, animals, etc. Some of my fifth graders even ask to make additional figures. However, considering your teaching situation, you could probably complete the entire set in one year.
Another idea is to do something with Noah's ark. You could assign one set of animals to each child. For this project, you need to use a self-hardening clay or maybe Sculpey. However, if your kids are likely to try eating the material, neither is a good choice! You would have to make the ark yourself. I don't have plans for one, but you can probably find instructions online by doing a search on Google.
Just a word of advice about the "quality" of the finished product. If you do this with two-year olds, you will get something that is reflective of that age group. However, the process of creating the figures is more important, even with kids who are a little older.
At any rate, this may be a good project, but you won't know till you try it out. Maybe you can introduce it to one or two children first just to see if you'd like a whole class to make the figures. Good luck!
