My husband and I are from England and are now on OPT (will have H1B in a few months). We have 2 children (4 and 2 years old) both US citizens. We pass the substantial presence test and are residential aliens. My question is can we claim our kids as dependents. We were advised a year ago that we couldn't claim our kids because of our F1 visa status. We want to make sure we are adhering to the tax laws.

If you did not complete 5 years on F-1 and OPT, you must file nonresident tax return. On nonresident tax return, you can not claim exemption for dependents.
If you change to H1-B, then starting from that year, you can choose to file joint return as residents. Your U.S. Tax Return: The U.S. Visas (http://taxipay.blogspot.com/2008/08/us-visas.html)

Thank you, we completed 7 years on an F-1 visa so we have filed as residential alien. Is that correct?

Yes, you will file resident return. You can claim the dependents.

Thank you for your help.