Writing is a bit like falling in love with an idea or a character. First there is the crush, when everything seems rosy and perfect. It you stay with the story long enough, reality begins to take hold. You start to see the flaws and have to ask yourself, "does the story work...is it worth the effort?" You have to decide if you're willing to do what is necessary to make the story a success. Sometimes the answer is, "No."
Like most writers I know, there is a file drawer in my office full of character sketches, half-written, or unpublished stories. Characters end up in a different work. Stories get recycled as something else entirely. You may discover your story works much better as a magazine article. There is a wealth of great children's magazines worth exploring: Highlights, Spider and Ladybug to name a few. Parent's Choice Award Winning Magazines has an extensive list.
Or, perhaps your manuscript is meant to be a longer work. Take for an example a picture book manuscript that I submitted a few years ago. It kept coming back...with positive comments. Editors liked the story - the writing - the language...but. I rewrote and rewrote trying to figure out what was keeping the book from being a success. It finally hit me...the story wasn't a picture book. It was a chapter book. You'll see it one of these days, but for now, I'm going to keep busy with my current writing projects which are focused on picture books.