In a large bowl, cut butter and cream cheese into flour until mixture resembles coarse crumbs. Blend mixture together until smooth dough forms, about 3 minutes. Pat into a rectangle; wrap in plastic. Refrigerate for 1 hour or until firm. For filling, combine the walnuts, sugar, milk and vanilla.
Unwrap dough and place on a lightly floured surface. Roll into a 17-1/2x10-in. rectangle; cut into 2-1/2-in. squares. Place a level teaspoonful of filling in the centre of each square. Moisten edges with water; fold in half and seal with a fork. Place 1 in. apart on ungreased baking sheets. Brush with egg.
Bake at 375° for 10-12 minutes or until edges are golden brown. Remove to wire racks to cool. Dust with confectioners' sugar.