In the bowl of your electric mix, cream together the butter and sugars.
Beat in the grated lemon peel. Gradually add the flour. Divide the dough into 2 pieces, wrap in plastic, and refrigerate for 30 minutes or more.
Preheat the oven to 325 degrees. Remove the dough from the refrigerator and let soften slightly. Roll each piece of dough between 2 pieces of waxed paper in a sheet about ¼ inch thick. Cut into shapes with a floured cookie cutter and place on lightly greased sheet pans. Bake until bottoms are lightly browned, about 7 to 10 minutes. Remove to rack to cool completely.
To prepare the glaze, combine the confectioners sugar, lemon zest and lemon juice.
Mix until smooth. Spread a thin layer of glaze over the cookies, then sprinkle with colored sugar if desired.