Hi Exellis it must have been really unsettling. I think you handled it well.
I am not sure what you mean by " Im just not sure we did the right thing." The only bit that sounds like you chose something was you chose to explain to the person who were with the brother who you/they were, which seems like a very sensible thing to do.
The decision for the children not to have direct contact at this time sounds like it was made by someone else, and the meeting was accidental so none of it is your 'fault' or responsibility. When you say "He just seemed genuinely excited to see them " do you mean the older one was excited? How did you little ones seem?
I have no experience of this at all and I would say that if there was positive interaction for all maybe it is not such a bad thing.
If the decision for them to see each other once a year is revisited then maybe you might find it works out well and is not detrimental, as you have not mentioned any 'fall-out' after the meeting.
I would imagine it is a huge balancing act, whether it is beneficial for one or all, and what the long term affects are in relation to the children seeing each other and having an awareness of each other.
You my well need professional help to determine this (IMHO).
I am sure a more wise and experienced person will be along soon to advise.
From my inexperienced point of view you handled it well and as long as you have not had any 'fall-out' afterwards it is possibly a good sign, it means if they accidently meet again you may well not have fall-out next time, BUT must say I have no experience of all this so just going on how the kids seem to have reacted to it.