You could hire yourselves a nice villa in Portugal, with a pool, for a reasonable amount. Weather would be nice. There are plenty of beaches, waterparks etc.
Same for Italy, south of France, Spain.
We only tend to do the villa hire route now, as I love the freedom - breakfast when you like, pool never shuts, complete privacy, no one annoying you. Bliss.
There are lots of family resorts in Egypt with good kids facilities, which you could also do for that price.
We stayed in the Playa Pesquero in Cuba a few years ago which had great pool,beach, kids facilities. It was big though. But you get good value for money with Cuba.
What a lovely gesture though, they sound like great people to have as parents.