Sorry to be the voice of doom! but:
Please be aware that making kids toys for a show is an absolute minefield. They must be safety tested and carry the CE mark to show that they have been. You can do it yourself but it just isn't worth the fuss and getting it done elsewhere costs an absolute fortune. Without doing this you are opening yourself up to legislative trouble (e.g. what if a child chokes on one of your puzzles or a piece that comes off a toy?) and trading standards can get involved if the items are not correctly labelled. You can't just say they are safe, you have to produce the paperwork showing what tests were performed and the results.
This is really unfortunate, as I am sure that most hand made toys are 1000% safer than some of the tat in the shops but the government have made it just too risky to produce them. I now only make puzzles/toys for adults and make sure that people are aware that this is the case by notices on my table and cards put in the bag with the items. It's a real shame but the only people that get my kids toys are my friends and family at xmas.
That being said, if you go ahead:
What about the beeswax paste recipe from toymakingplans.com ? If i remember correctly its 1 pint of mineral oil and 1/2 a cup (american measurements) of grated beeswax. It has a lovely feel and a piece of cake to make. You just have to make sure that the pieces still fit after finishing puzzles. This is where Danish Oil comes into its own - no raised grain. Toolstation do a great danish oil for about £25 for 5 litres which is fine for sealing natural wood but I have found that if you stain the wood first it tends to dissolve the stain somewhat. Cheap and cheerful Bird Brand works better on sealing woodstain - or even food colouring. Just dont use TESCO own food colouring - rubbish, get supercook if you want to go down that path - at least food colouring is safe for kids too. A lot of Danish Oils are not safe for kids until they are cured - about 30 days.