As salamu alaykum brother,
While you did not state if your wife has a mental health issue, I would insist she be evaluated by a mental health professional. Additionally, she cannot continue to abuse the children, and you are their father cannot let them be abused. If you have to take your children to a safe place such as your parents, please do so. While I do not know what country you are located in, most countries have very strict laws about child abuse. I highly suggest brother that if you love your children and desire to keep them, take them to a safe place and get your wife some help.
As it sounds, the children will also need counseling as they are fearful and withdrawn. Please do arrange for therapy for them as well, immediately.

In the Qur’an (1) it states “ Indeed, Allah enjoins justice, and the doing of good to others; and giving like kindred; and forbids indecency, and manifest evil, and wrongful transgression. He admonished you that you may take heed. “ (Quran 16:91)

What your wife is doing to your children brother is haram and a sin. She is acting as an oppressor and abuser. Whether it is conscious out of anger or due to a mental illness it must be stopped. Children are a gift to us from Allah SWT, He has entrusted us with their care. We are to love our children and treat them with kindness and compassion. Sadly, they have been exposed to abuse and injustices.

Children have the right to be protected by their parents. It is expected that they will be cared for, nurtured, fed, clothed and kept from harm. Allah gave children rights just as He gave parents rights. Children have rights to a good education, a solid Islamic upbringing and a safe and calm environment to grow up in. Children who are abused often grow up with many psychological trauma and self esteem issues. They can even go on to abuse their own children as this was how they were raised, and they did not know loving kindness. This is unIslamic brother and it has damaged your children. Insha’Allah, with intervention they will be alright. Please make duaa to Allah SWT to help you and guide you towards the right people who can help. Please speak with a trusted Imam at your Masjid as well for guidance on how to go about getting your wife help after the children are in a safe place.

Brother I understand that the condition your children are now in must shock and hurt you. To see what has happened to them is very sad. You must also be upset and saddened by your wife’s issues. However, your first priority right now is getting your children to a safe place, get them into counseling and address your wifes mental health needs as well.

The Prophet (peace and blessings be upon him) is reported to have said “All of you are guardians and all of you are responsible for things under your guardianship; the ruler is a guardian (managing his state’s affairs) and he is responsible for things under his care, the man is a guardian over his family and responsible for them, the woman is a guardian of her husband’s house and she is responsible for it. All of you are guardians and responsible for things under your control.”

Therefore brother as you can see, you as the father as the head of your household are accountable to Allah and responsible for resolving this situation immediately. Please do not let any more harm come to your children.

You are in our prayers brother, please let us know how you and your children and wife are doing.