http://en.wikipedia.org/wiki/Colonel_Kurtz
While the Viet Cong could be vicious, nothing like what your report states seems to have occurred in Vietnam. The actual example of retributions tended to be out and out killings not chopping off of arms. Furthermore such acts would have outdone Mao's rule that the guerrillas must be a fish in the sea of peasants. Thus the killing of Government agents (including teachers) was standard operation procedure, killing of peasants were not.
As to village leaders, most were pro Viet Cong, and thus the US came up with operation Phoenix to have Special Forces operators to kill such leaders till the village picked one acceptable to the Government of South Vietnam. It is believed the Viet Cong Adopted a similar policy, but no evidence of it has ever been produced.
Just a comment that it takes a very hard person to cut off the arms of children (or even an adult). On the other hand it is a lot easier psychologically to kill one's adult enemy,
As I said, the killer was either careless, setting himself up to kill the children and the Soldiers OR the Soldiers decided it was safe to be outside ONLY WHEN CHILDREN WERE PRESENT. If that is the case, who actually arranged to kill these children??
It appears the intent was to kill NATO soldiers, and that what happened. The Children were with being used as cover by the NATO Soldiers OR the Killer cared less about them. More details are needed, but NATO is not talking and since this was a suicide bomber, neither is the killer.