In a large mixing bowl stir together 2 cups of the flour and the yeast. Set mixture aside.
In a medium saucepan heat and stir the 1 cup milk, the 3/4 cup margarine or butter, sugar, and salt just until warm (120 degrees F to 130 degrees F) and margarine almost melts. Add to the flour mixture. Add the egg yolks. Beat with an electric mixer on low to medium speed for 30 seconds, scraping the sides of the bowl constantly. Then beat on high speed for 3 minutes. Using a wooden spoon, stir in the lemon peel and as much of the remaining flour as you can.
Turn dough out onto a lightly floured surface. Knead in enough of the remaining flour to make a moderately soft dough that is smooth and elastic (3 to 5 minutes total). Place dough in a greased bowl, turning once to grease the surface. Cover and let rise in a warm place until double (1 to 1-1/2 hours).
Meanwhile, in a small saucepan combine snipped dried apricots and enough water to come 1 inch above the apricots. Bring to boiling. Reduce heat. Cover and simmer for 10 to 15 minutes or until apricots are very soft. Drain, reserving 2 tablespoons cooking liquid.
In a blender container or food processor bowl, place apricots, reserved liquid, 1/4 cup sugar, lemon juice, and nutmeg. Cover and blend or process until smooth, stopping to scrape sides as necessary. Set aside to cool.
Punch down dough. Turn the dough out onto a lightly floured surface. Divide in half. Cover and let rest for 10 minutes. Grease baking sheets. Shape each half of dough into 12 balls, pulling the edges under to make smooth tops. Place the balls 3 inches apart on the prepared baking sheets. Flatten each ball to 2-1/2 inches in diameter. Cover; let rise until nearly double (about 35 minutes).
Using your thumb or two fingers, make an indentation in the center of each dough circle. Spoon about 2 teaspoons filling into each indentation. Lightly brush the 2 tablespoons melted margarine or milk around the edges of rolls.
Bake in a 375 degree F oven for 10 to 12 minutes or until rolls are golden brown. Remove rolls from baking sheets and cool on a wire rack. Lightly sift powdered sugar over the tops. Makes 24 kolaches.