Cream the butter and cream cheese together until fluffy. Blend in baking powder, salt, sugar. Egg, grated lemon peel, and the lemon juice. Gradually blend in the 3 cups flour, or more, and knead to form a soft dough. Force the dough through a cookie press with a number 16 plate to form 3-inch-long bars. Press the cookies directly onto the baking sheet. Bake in a preheated oven at 400 for 8-10 minutes. Allow cooling on a rack.
In a small bowl, blend the sugar, lemon juice, and milk together until smooth. Brush half the top of the cookie with icing. Sprinkle the icing with walnuts. Place on a rack to dry the icing. Repeat the process.