In my book, there is absolutely NO reason to hit your kids. If you have to hit them, you've failed already. That being said, the mom in question was undoubtedly in a high-stress situation, and her reactions were likely influenced by her fear & panic. The thing that bothers me though is by the way you're describing the incident, the mom hit the kid REALLY hard. I wouldn't be that concerned if she just yanked him away from you, panic could explain that, but leaving fingerprints on his face? That is CLEARLY out of line.
I think the only thing to do is to observe the kids. Since they're your neighbors, you'll probably see a lot of them. Just pay attention. If they exibit obvious signs of physical abuse, then you know what to do. If not, then you really have no way of telling what the true situation is unless you are close to the family in question. Your choice then is to a) try to get to know them well enough to judge the situation, b) proceeding on the assumption that there IS child abuse and contacting the proper authorities or c) proceeding on the assumption that there is no child abuse and letting the thing go.
In my opinion, c) is unacceptable and b) is premature, which leaves a). I must stress though that this is only an OPINION, based on an account of an incident i havent witnessed. As you yourself pointed out, this is serious stuff - tread carefully and best of luck.
