Cream butter and white sugar until fluffy. Stir in egg yolk and milk. Add citron to butter mixture and stir in. Add flour and baking powder; blend well. Chill until firm, about 1 hour.
Preheat oven to 350 degrees F (175 degrees C). In a clean, dry, glass or metal bowl, whip egg white until frothy. Gradually incorporate 1 1/2 cups confectioner's sugar; beat until meringue holds its shape. Fold in almonds.
Roll dough 1/8 inch thick on lightly floured board; cut out small rounds with 2 inch cookie cutter. Place 1 inch apart on a greased baking sheet. Put 1 teaspoon Almond Meringue in center of each round to make it look like the crown of a hat.
Bake 10 to 12 minutes in the preheated oven, or until golden. To Make Icing: Gradually add water to 2 cups confectioner's sugar, mixing until icing is stiff. Add 1 to 2 drops of food coloring. When cookies are cool, pipe around crown of hat with Icing to look like a hatband.