Crumble almond paste into a large mixing bowl. Beat with an electric mixer on medium to high speed for 30 seconds. Add the butter and beat for 30 seconds more. Add the sugar, lemon peel, and the 1/2 teaspoon almond extract. Beat about 2 minutes more or until combined, scraping sides of bowl occasionally. Beat in as much flour as you can with the mixer. Using a wooden spoon, stir in any remaining flour. Divide dough in half.
On a lightly floured surface, roll half of the dough at a time to 1/4-inch thickness. Using a 2-inch square scalloped cookie cutter, cut out dough. Place on prepared cookie sheet.
In a small bowl beat the egg yolks, water, and the 1/4 teaspoon almond extract until combined. Brush the egg mixture onto cookies. Place 2 almond slices on each cookie.
Bake in a 375 degree F oven for 7 to 9 minutes or until edges are firm and bottoms are very lightly browned. Cool on cookie sheet for 1 minute. Transfer cookies to a wire rack; cool. Makes about 36 (2-inch) cookies.