sirfred I too am not too keen on 'challenge'.
I mean, children should have the opportunity to experience tackling something hard, initially failing, persevering, and getting there in the end - that is such a great experience, much more rewarding than simply 'getting' something right away, and as such a very important lesson. And such opportunities should not come too late either, when the child has already formed a self-image of finding everything easy. But not all of life, or even all of school, should be 'challenging' like that. I for one did not want my KS1 child to be constantly challenged. Not once in KS1 did I mention anything about 'being challenged' to any of his teachers.
I wasn't even overly bothered about 'engaging' either. DS goes to school to see his friends; if something in a lesson is engaging, then that's a bonus.
But I have been becoming more concerned lately (now Y3) as DS began to exhibit worrying traits of perfectionism, and of refusing to even try if he didn't think he'd be very good at something.
Eventually I started taking him to a chess club where I knew there'd be many kids better at the game than him (he is a beginner after all). I was surprised when in the first session he attended, he lost twice, but then was beaming and asking to go back again when he came out. Since that day, he has practised almost daily, is constantly asking for more, totally engaged. Like he hasn't been engaged in anything really, since starting school.
So yes, I would take engaging. An occasional small dose of challenge might help with the engagement though. And would support development of a healthier attitude to work too.
I also think many people sort of use 'challenging' as a shorthand for 'engaging' sometimes.