Fantastmic has fireworks, a story that kids that young will understand, characters, a fun sword fight, and "scary" scenes (a big dragon for one, but nothing a Disney movie loving child can't handle).
Illuminations is gorgeous fireworks and special effects, but the story will almost definitely go over the 3yo, and maybe over the 7yo. It is a moving and touching presentation, but the parents will like it more than the kids, in my opinion.
You probably can view both on youtube to decide which YOUR children would like better. But my vote would be Fantasmic.