In a large bowl, cream butter and sugar until light and fluffy. Beat in the lime zest, lime juice and vanilla. Gradually add flour and mix well. Beat in food colouring. Stir in pistachios. Cover and refrigerate for 4 hours or until easy to handle.
On a lightly floured surface, roll out dough to 1/4-in. thickness. Cut with a floured 2-1/2-in. tree-shaped cookie cutter. Place 1 in. apart on ungreased baking sheets. Bake at 350° for 8-10 minutes or until set. Cool for 5 minutes before removing from pans to wire racks to cool completely.
In a large bowl, combine confectioners' sugar, water and meringue powder; beat on low speed just until blended. Beat on high 4-5 minutes or until stiff peaks form. Divide in half; if desired, tint one portion green. Keep unused icing covered at all times with a damp cloth. If necessary, beat again on high speed to restore texture.
Frost and decorate cookies as desired. Let stand at room temperature several hours or until frosting is dry and firm. Store in an airtight container.