You would need to insert the Install disc, reboot your MacBook by holding the C key until you see the spinning wheel.
Then when the first screen of the installer appears, go to the Utilities menu and pick Disk Utility. In there, you can select the whole drive on the left and then do an erase or re-partition.
Then exit the Disk Utlity and continue with the installer.
The MacBooks from 2006 had been initially shipped with 10.4.6 or 10.4.8, so you could use the gray install disc that came with them.
Or if you have a black retail install disk for 10.5.4 or 10.6.x, you could also use that.
The retail disk for 10.6 is not black, but white with the Snow Leopard on it.
Message was edited by: probe_droid
Not erase and re-install, but there is a way round it using the "Erase Free Space" option.
Create a new admin user for the new recipient (or for yourself, to control what's being downloaded). Log into it and delete the existing admin account - In System prefs > accounts, click the lock and authenticate, highlight the doomed account and click the minus sign below the pane. You'll be asked if you want to permanently delete the home folder or archive it. Choose to delete.
Then go to Disk Utility, Select Macintosh HD and Erase Free Space. That will overwrite the account you just deleted with zeros, rendering the data practically unrecoverable. The new account and the System will be untouched.
That will take some time - depending on the size of the HD it could be several hours as it will overwrite all free space of which there will now be a lot! Make sure sleep settings are turned off and run it on mains power while doing this.
Then set up as many accounts as you need for the kids.
Ideally, replace the original discs from Applecare for a small charge (you'll need the MB's serial number), or get a Snow Leopard retail disc from the Apple Store (currently around $30) so you have something to install a new system if it ever becomes necessary.
However, this method should get you up and running.